It's common wisdom that the lower a company's debt levels are, the lower the level of risk in the investment. This can be true if you're looking at two comparable companies and one has an extraordinary amount of debt, while the other does not. This is particularly true when looking at retailers.
Many retailers carry little or no debt, but that doesn't necessarily mean that these companies are lower-risk investments. Abercrombie & Fitch
Another liability that retailers have, but don't carry on the balance sheet, is operating leases. Many of my colleagues at Fool HQ treat these leases as debt, because they're contractual agreements that must be paid -- although it's important to note that they're not interest-bearing. Because I've seen REITs looking to replace weak tenants with strong ones and, in the process, willing to accept termination fees that are less than the remaining value of the lease, I don't treat the entire balance as debt. The different processes for analyzing lease liabilities aren't nearly as important as recognizing the fact that there are often large off-balance sheet liabilities that will only be found in a retailer's footnotes.
On the other side of the coin, there are companies such as Staples
That really is the crux of the matter. Little or no debt can, but doesn't always, mean less risk. Before picking up shares in any retailer, it pays to look beyond the debt and understand the nature of the business, because a little bit of debt can actually be a very good thing for a company with a predictable business model.
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