J&J Snack Foods (NASDAQ:JJSF) Has A Pretty Healthy Balance Sheet

J & J Snack Foods Corp. +0.46%

J & J Snack Foods Corp.

JJSF

135.02

+0.46%

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, J&J Snack Foods Corp. (NASDAQ:JJSF) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for J&J Snack Foods

How Much Debt Does J&J Snack Foods Carry?

You can click the graphic below for the historical numbers, but it shows that J&J Snack Foods had US$7.00m of debt in December 2023, down from US$92.0m, one year before. But it also has US$50.0m in cash to offset that, meaning it has US$43.0m net cash.

debt-equity-history-analysis
NasdaqGS:JJSF Debt to Equity History April 3rd 2024

How Strong Is J&J Snack Foods' Balance Sheet?

According to the last reported balance sheet, J&J Snack Foods had liabilities of US$165.3m due within 12 months, and liabilities of US$214.8m due beyond 12 months. Offsetting this, it had US$50.0m in cash and US$166.2m in receivables that were due within 12 months. So it has liabilities totalling US$163.9m more than its cash and near-term receivables, combined.

Since publicly traded J&J Snack Foods shares are worth a total of US$2.76b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, J&J Snack Foods boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that J&J Snack Foods has boosted its EBIT by 83%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine J&J Snack Foods's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While J&J Snack Foods has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, J&J Snack Foods's free cash flow amounted to 28% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that J&J Snack Foods has US$43.0m in net cash. And it impressed us with its EBIT growth of 83% over the last year. So we don't think J&J Snack Foods's use of debt is risky. We'd be motivated to research the stock further if we found out that J&J Snack Foods insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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