Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Duluth Holdings Inc. (NASDAQ:DLTH) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Duluth Holdings Carry?

The chart below, which you can click on for greater detail, shows that Duluth Holdings had US$69.2m in debt in November 2025; about the same as the year before. On the flip side, it has US$8.17m in cash leading to net debt of about US$61.0m.

How Strong Is Duluth Holdings' Balance Sheet?

The latest balance sheet data shows that Duluth Holdings had liabilities of US$177.7m due within a year, and liabilities of US$132.6m falling due after that. On the other hand, it had cash of US$8.17m and US$7.10m worth of receivables due within a year. So it has liabilities totalling US$295.1m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$88.9m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Duluth Holdings would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Duluth Holdings can strengthen its balance sheet over time.

Over 12 months, Duluth Holdings made a loss at the EBIT level, and saw its revenue drop to US$591m, which is a fall of 6.4%. That's not what we would hope to see.

Caveat Emptor

Importantly, Duluth Holdings had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$22m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely since it is low on liquid assets, and made a loss of US$30m in the last year. So we think this stock is quite risky. We'd prefer to pass. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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