AtkinsRéalis Group (TSE:ATRL) Seems To Use Debt Quite Sensibly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies AtkinsRéalis Group Inc. (TSE:ATRL) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is AtkinsRéalis Group's Debt?

The image below, which you can click on for greater detail, shows that AtkinsRéalis Group had debt of CA$811.5m at the end of June 2025, a reduction from CA$2.05b over a year. But on the other hand it also has CA$953.1m in cash, leading to a CA$141.7m net cash position.

A Look At AtkinsRéalis Group's Liabilities

The latest balance sheet data shows that AtkinsRéalis Group had liabilities of CA$4.88b due within a year, and liabilities of CA$1.86b falling due after that. On the other hand, it had cash of CA$953.1m and CA$3.45b worth of receivables due within a year. So its liabilities total CA$2.34b more than the combination of its cash and short-term receivables.

Given AtkinsRéalis Group has a humongous market capitalization of CA$16.2b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, AtkinsRéalis Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for AtkinsRéalis Group

Also relevant is that AtkinsRéalis Group has grown its EBIT by a very respectable 25% in the last year, thus enhancing its ability to pay down debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if AtkinsRéalis Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. AtkinsRéalis Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, AtkinsRéalis Group created free cash flow amounting to 9.2% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While AtkinsRéalis Group does have more liabilities than liquid assets, it also has net cash of CA$141.7m. And it impressed us with its EBIT growth of 25% over the last year. So we are not troubled with AtkinsRéalis Group's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for AtkinsRéalis Group that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.