Is Ecolomondo (CVE:ECM) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Ecolomondo Corporation (CVE:ECM) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Ecolomondo Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Ecolomondo had CA$44.7m of debt, an increase on CA$41.2m, over one year. And it doesn't have much cash, so its net debt is about the same.

How Strong Is Ecolomondo's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ecolomondo had liabilities of CA$6.88m due within 12 months and liabilities of CA$44.5m due beyond that. On the other hand, it had cash of CA$226.6k and CA$881.0k worth of receivables due within a year. So it has liabilities totalling CA$50.2m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of CA$35.2m, we think shareholders really should watch Ecolomondo's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. There's no doubt that we learn most about debt from the balance sheet. But it is Ecolomondo's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Ecolomondo

In the last year Ecolomondo wasn't profitable at an EBIT level, but managed to grow its revenue by 95%, to CA$833k. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though Ecolomondo managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at CA$3.4m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of CA$2.2m over the last twelve months. So suffice it to say we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Ecolomondo (of which 4 are potentially serious!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.