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. We can see that BlueLinx Holdings Inc. (NYSE:BXC) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is BlueLinx Holdings's Net Debt?

As you can see below, BlueLinx Holdings had US$296.4m of debt, at September 2025, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$429.4m in cash, leading to a US$132.9m net cash position.

How Strong Is BlueLinx Holdings' Balance Sheet?

We can see from the most recent balance sheet that BlueLinx Holdings had liabilities of US$239.1m falling due within a year, and liabilities of US$719.9m due beyond that. Offsetting these obligations, it had cash of US$429.4m as well as receivables valued at US$268.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$260.9m.

BlueLinx Holdings has a market capitalization of US$504.5m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, BlueLinx Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

Importantly, BlueLinx Holdings's EBIT fell a jaw-dropping 38% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if BlueLinx Holdings can strengthen its balance sheet over time.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. BlueLinx Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, BlueLinx Holdings actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While BlueLinx Holdings does have more liabilities than liquid assets, it also has net cash of US$132.9m. And it impressed us with free cash flow of -US$25m, being 161% of its EBIT. So although we see some areas for improvement, we're not too worried about BlueLinx Holdings's balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with BlueLinx Holdings , and understanding them should be part of your investment process.

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.