We think Texas Roadhouse (NASDAQ:TXRH) can manage debt with ease

Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Like many other companies Texas Roadhouse, Inc. (NASDAQ:TXRH) uses debt. But should shareholders worry about its use of debt?

Why is debt risky?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. The first thing to do when considering how much debt a business has is to look at its cash and debt together.

What is Texas Roadhouse’s net debt?

The image below, which you can click for more details, shows Texas Roadhouse had $100.0 million in debt at the end of March 2022, a reduction from $240.0 million year-over-year. But he also has $325.7 million in cash to offset that, which means he has $225.7 million in net cash.

NasdaqGS: TXRH Historical Debt to Equity July 25, 2022

A Look at Texas Roadhouse’s Responsibilities

According to the last published balance sheet, Texas Roadhouse had liabilities of $541.8 million due within 12 months and liabilities of $860.3 million due beyond 12 months. In compensation for these obligations, it had cash of US$325.7 million as well as receivables valued at US$45.2 million and maturing within 12 months. Thus, its liabilities outweigh the sum of its cash and (current) receivables by $1.03 billion.

Given that publicly traded shares of Texas Roadhouse are worth a total of US$5.71 billion, it seems unlikely that this level of liability is a major threat. But there are enough liabilities that we certainly recommend that shareholders continue to monitor the balance sheet in the future. Despite its notable liabilities, Texas Roadhouse has clean cash, so it’s fair to say it doesn’t have heavy debt!

What is even more impressive is that Texas Roadhouse increased its EBIT by 238% year-over-year. If sustained, this growth will make debt even more manageable in years to come. The balance sheet is clearly the area to focus on when analyzing debt. But future earnings, more than anything, will determine Texas Roadhouse’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, while the taxman may love accounting profits, lenders only accept cash. Although Texas Roadhouse has net cash on its balance sheet, it’s still worth looking at its ability to convert earnings before interest and taxes (EBIT) to free cash flow, to help us understand how quickly it’s building ( or erodes) that money. balance. Fortunately for all shareholders, Texas Roadhouse has actually produced more free cash flow than EBIT for the past three years. This kind of high cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.


Although Texas Roadhouse’s balance sheet is not particularly strong, due to total liabilities, it is clearly positive to see that it has a net cash position of $225.7 million. And it impressed us with free cash flow of $268 million, or 102% of its EBIT. So is Texas Roadhouse debt a risk? This does not seem to us to be the case. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Be aware Texas Roadhouse poster 1 warning sign in our investment analysis you should know…

If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-neutral growth stocks right away.

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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