Is Reko International Group (CVE:REKO) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Reko International Group Inc. (CVE:REKO) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Reko International Group Carry?

The image below, which you can click on for greater detail, shows that Reko International Group had debt of CA$9.79m at the end of April 2025, a reduction from CA$11.2m over a year. But it also has CA$20.0m in cash to offset that, meaning it has CA$10.2m net cash.

A Look At Reko International Group's Liabilities

According to the last reported balance sheet, Reko International Group had liabilities of CA$8.63m due within 12 months, and liabilities of CA$8.19m due beyond 12 months. On the other hand, it had cash of CA$20.0m and CA$13.5m worth of receivables due within a year. So it actually has CA$16.7m more liquid assets than total liabilities.

This surplus strongly suggests that Reko International Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Reko International Group has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Reko International Group

Although Reko International Group made a loss at the EBIT level, last year, it was also good to see that it generated CA$384k in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Reko International Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Reko International Group 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. Over the last year, Reko International Group actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case Reko International Group has CA$10.2m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 3,596% of that EBIT to free cash flow, bringing in CA$14m. So we don't think Reko International Group's use of debt is risky. 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 example, we've discovered 3 warning signs for Reko International Group (2 make us uncomfortable!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.