Burlington Stores (NYSE:BURL) appears to be using its debt quite wisely

Some say volatility, not debt, is the best way to think about risk as an investor, but Warren Buffett famously said, “Volatility is far from synonymous with risk.” So it seems that smart people know that debt – which usually comes with it Bankruptcies are a very important factor when assessing the risk of a company. We can see that Burlington Stores, Inc. (NYSE:BURL) uses debt in its business. But the more important question is: How much risk does this debt pose?

When is debt a problem?

Debt is a tool that helps companies grow. However, if a company is unable to repay its lenders, it is at their mercy. If the company can’t meet its legal obligations to pay down debt, shareholders could end up with nothing. However, a more common (but still painful) scenario involves having to raise new equity capital at a low price, resulting in permanent shareholder dilution. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. When considering how much debt a company has, you first need to consider its cash flow and debt together.

Check out our latest analysis for Burlington Stores

How much does Burlington Stores owe?

You can click on the graphic below to see the historical numbers. However, it shows that Burlington Stores had $1.71 billion in debt as of November 2024, up from $1.38 billion in a year. On the other hand, the company has cash of $857.8 million, leading to net debt of around $855.7 million.

How healthy is Burlington Stores’ balance sheet?

According to the last reported balance sheet, Burlington Stores had liabilities of US$2.30b due within 12 months, and liabilities of US$4.99b due beyond 12 months. On the other hand, it had cash of US$857.8m and US$102.9m worth of receivables due within a year. So its liabilities total US$6.34b more than the combination of its cash and short-term receivables.

This deficit isn’t that bad since Burlington Stores is valued at a massive $18.4 billion, so it could probably raise enough capital to support its balance sheet if needed. Nevertheless, it is worth taking a close look at your ability to repay your debts.

We measure a company’s debt load relative to its earnings power by dividing its net debt by its earnings before interest, tax, depreciation, and amortization (EBITDA) and calculating how easily its earnings before interest and tax (EBIT) can cover its interest expense (interest cover). ). We take into account both the absolute amount of the debt and the interest paid on it.

Burlington Stores’ net debt is just 0.84 times its EBITDA. And its EBIT easily covers 15.1 times its interest expense. So you could argue that it is no more threatened by its debt than an elephant is threatened by a mouse. Additionally, Burlington Stores grew its EBIT by 36% over the last twelve months, and this growth will make it easier to manage its debt. When analyzing debt levels, the balance sheet is the obvious place to start. However, the company’s future profitability will ultimately determine whether Burlington Stores can strengthen its balance sheet over time. So if you’re focused on the future, you can look at that free Report with analyst profit forecasts.

And finally, while the tax officer is happy about book profits, lenders only accept cold hard cash. So the logical step is to examine the proportion of that EBIT that corresponds to actual free cash flow. Looking at the last three years, Burlington Stores recorded free cash flow of 28% of its EBIT, which is weaker than we’d expect. That’s not great when it comes to paying off debt.

Our view

Burlington Stores’ interest coverage suggests that the company can handle its debt as easily as Cristiano Ronaldo could score a goal against a goalkeeper under the age of 14. On a more bleak note, we’re a little concerned about the conversion of EBIT to free cash flow. When you consider all of the above factors together, we notice that Burlington Stores can manage its debt reasonably easily. On the positive side, this leverage can boost shareholder returns, but the potential downside is a higher risk of loss, which is why it’s worth keeping an eye on the balance sheet. When analyzing debt levels, the balance sheet is the obvious place to start. However, not all investment risks lie on the balance sheet – quite the opposite. Case in point: We discovered it 2 warning signs for Burlington stores You should be aware of that.

Ultimately, it’s often better to focus on companies that are free of net debt. You can access our special list of such companies (all with a track record of growing profits). It’s free.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.