We Think Toromont Industries (TSE:TIH) Can Stay On Top Of Its Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Toromont Industries Ltd. (TSE:TIH) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Toromont Industries Carry?

As you can see below, at the end of September 2025, Toromont Industries had CA$796.2m of debt, up from CA$648.2m a year ago. Click the image for more detail. But on the other hand it also has CA$1.06b in cash, leading to a CA$264.2m net cash position.

How Healthy Is Toromont Industries' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Toromont Industries had liabilities of CA$965.3m due within 12 months and liabilities of CA$1.06b due beyond that. Offsetting this, it had CA$1.06b in cash and CA$761.6m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$199.3m.

Having regard to Toromont Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CA$13.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Toromont Industries also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Toromont Industries

Toromont Industries's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Toromont Industries 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, a company can only pay off debt with cold hard cash, not accounting profits. While Toromont Industries has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Toromont Industries's free cash flow amounted to 41% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Toromont Industries has CA$264.2m in net cash. So we don't have any problem with Toromont Industries's use of debt. We'd be motivated to research the stock further if we found out that Toromont Industries insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.