As of the end of fiscal 2014 ended January 31, 2015, Ross Stores (ROSS) had a total debt of $398.4 million, compared to $150 million in fiscal 2013. The company’s net income in fiscal 2014 came in at $924.7 million, and its interest expense was $2.9 million.
Less leveraged than peers
Ross Stores’ debt-to-equity ratio in fiscal 2014 ended January 31, 2015, was 0.2x. The debt-to-equity ratio of leading off-price retailer TJX Companies (TJX) was 0.4x in the comparable fiscal year.
Nordstrom (JWN), which is aggressively expanding its off-price Rack stores, reported a debt-to-equity ratio of 1.3x in fiscal 2014. Mid-scale department stores Dillard’s (DDS) and Kohl’s (KSS) had debt-to-equity ratios of 0.4x and 0.8x, respectively, in fiscal 2014.
The debt-to-equity ratio indicates the proportion of debt and equity used to finance a company’s assets. A lower ratio indicates lower financial leverage. A company with lower financial leverage is preferred by risk-averse investors.
Negative debt to EBITDA
The debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio reflects a company’s ability to repay its debt. In fiscal 2014, Ross Stores’ debt-to-EBITDA ratio was -0.2x.
Generally, a lower debt-to-EBITDA ratio indicates that a company has sufficient funds to service its debt. But what does a negative debt-to-EBITDA ratio imply? A negative debt-to-EBITDA ratio indicates that a company has more cash than debt.
TJX Companies’ debt-to-EBITDA ratio was -0.3x in the fiscal year ended January 31, 2015. Nordstrom, Dillard’s, and Kohl’s had debt-to-EBITDA ratios of 1.3x, 0.5x, and 1.3x, respectively, in fiscal 2014.
Ross Stores’ lower debt level gives the company more flexibility compared than its peers, who are heavily burdened with debt obligations. Also, the company has strong cash flows, which pay dividends and are sufficient for meeting its capital expenditure.