A Look at 3 Companies With No Debt

William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With interest rates on the rise, the fundamental risks of companies relying on a great deal of debt for their operations increases significantly. You should want your publicly traded businesses to minimize or eliminate debt altogether under these conditions. The three companies below possess zero debt on their balance sheets, and subsequently, lower fundamental risk.

Investment research anyone?

Morningstar (NASDAQ: MORN) is one of the most well-known investment research companies in the world. It provides everything from analyst research reports and mutual fund ratings to retirement planning tools.

Naturally, if you want to invest in an investment research company, you would want it to demonstrate financial leadership by keeping its own house in order.

Last year, Morningstar increased revenue 4%; however, free cash flow declined due to an expansion in accounts receivable and an increase in capital expenditures. Its operating margins increased one percentage point to 23% last year from 22% in 2011. Return on equity clocked in at 15% as of the end of 2012.

Morningstar did better in its most recent quarter with revenue and free cash flow growing 6% and 80%, respectively. Morningstar maintains a pristine balance sheet with cash and investments equating to 44% of stockholder’s equity as of the most recent quarter.

Also, in the most recent quarter, Morningstar paid out 9% of its free cash flow in dividends. It currently pays $0.50 per share per year and yields 0.60%.

As more and more individuals turn to the investing world for retirement security, as pensions increasingly go by the way side, investment research provided by firms such as Morningstar will only increase in relevance.

Bread, soup, and Wi-Fi

Panera Bread (NASDAQ: PNRA) sells high end soup, sandwiches, and beverages while bringing a superior experience to its customers through an internet café like atmosphere. Even if you don’t want a sandwich, you can go there and order a beverage and read internet articles on your tablet or computer.

Panera Bread performed wonderfully last year with sales and free cash flow increasing 17% and 6%, respectively. Operating margins improved from 12% in 2011 to 13% last year and return on equity came in at 21%.

In Panera’s most recent quarter, revenue increased 11% while free cash flow declined 20% due to increased capital expenditures. Panera Bread also possesses an excellent balance sheet with cash making up 38% of its stockholder’s equity during its most recent quarter.

Panera’s same-store sales increase of 3.8% came in below management expectations. In addition, management lowered their guidance, serving as a catalyst for a stock price correction. This could indicate market saturation for Panera’s stores. Currently, the stock still trades at 27 times earnings, well above the S&P 500’s average of 19. Look for buying opportunities from any volatility resulting from these concerns.

Beauty pays

Specialty retailer Ulta Salon, Cosmetics & Fragrance (NASDAQ: ULTA) provides prestigious beauty products at a value price according to its website.

Last year, Ulta increased revenue 25%; however, free cash flow declined 45% due to increased investments into the business. Its operating margins jumped to 13% versus 11% for 2011. Ulta’s return on equity stood at 22% as of last year.

In the most recent quarter, revenue increased 23% and free cash flow swung from a negative $12 million to $831,000 due to higher operating cash flow. Cash as a percentage of stockholder’s equity came in at 36%.

Ulta recently got a new CEO. The company plans to open 125 stores this year, consolidate membership loyalty programs, and revamp its e-commerce platform. Watch for these initiatives as well as any that the new CEO may come up with to move the company forward.


All three of these companies sport a high cash/no debt balance sheet. This will enable them to better weather tough times and to continue investing in their businesses through new products, customer experiences, and/or geographical expansion. They definitely deserve a place on your Motley Fool Watch List.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

William Bias has no position in any stocks mentioned. The Motley Fool recommends Morningstar, Panera Bread, and Ulta Salon, Cosmetics & Fragrance. The Motley Fool owns shares of Panera Bread and Ulta Salon, Cosmetics & Fragrance. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus