Canlan Ice Sports (TSE:ICE) Seems To Use Debt Quite Sensibly

Warren Buffett famously said, '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 Canlan Ice Sports Corp. (TSE:ICE) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Why Does Debt Bring Risk?

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. 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. 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 Canlan Ice Sports Carry?

The chart below, which you can click on for greater detail, shows that Canlan Ice Sports had CA$41.3m in debt in March 2025; about the same as the year before. On the flip side, it has CA$19.8m in cash leading to net debt of about CA$21.5m.

How Strong Is Canlan Ice Sports' Balance Sheet?

The latest balance sheet data shows that Canlan Ice Sports had liabilities of CA$26.2m due within a year, and liabilities of CA$50.0m falling due after that. Offsetting these obligations, it had cash of CA$19.8m as well as receivables valued at CA$3.68m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$52.7m.

This deficit is considerable relative to its market capitalization of CA$61.4m, so it does suggest shareholders should keep an eye on Canlan Ice Sports' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution.

View our latest analysis for Canlan Ice Sports

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

While Canlan Ice Sports has a quite reasonable net debt to EBITDA multiple of 1.6, its interest cover seems weak, at 1.9. This does have us wondering if the company pays high interest because it is considered risky. Either way there's no doubt the stock is using meaningful leverage. Notably, Canlan Ice Sports's EBIT launched higher than Elon Musk, gaining a whopping 216% on last year. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Canlan Ice Sports will need earnings to service that debt. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we always check how much of that EBIT is translated into free cash flow. Over the last three years, Canlan Ice Sports 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.

Our View

Canlan Ice Sports's conversion of EBIT to free cash flow was a real positive on this analysis, as was its EBIT growth rate. But truth be told its interest cover had us nibbling our nails. When we consider all the elements mentioned above, it seems to us that Canlan Ice Sports is managing its debt quite well. But a word of caution: we think debt levels are high enough to justify ongoing monitoring. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Canlan Ice Sports has 3 warning signs (and 1 which is significant) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.