Replenish Nutrients Holding (CSE:ERTH) Is Making Moderate Use Of 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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Replenish Nutrients Holding Corp. (CSE:ERTH) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Replenish Nutrients Holding Carry?

The image below, which you can click on for greater detail, shows that at September 2025 Replenish Nutrients Holding had debt of CA$5.79m, up from CA$2.64m in one year. However, it does have CA$273.5k in cash offsetting this, leading to net debt of about CA$5.52m.

How Healthy Is Replenish Nutrients Holding's Balance Sheet?

The latest balance sheet data shows that Replenish Nutrients Holding had liabilities of CA$9.41m due within a year, and liabilities of CA$2.20m falling due after that. Offsetting this, it had CA$273.5k in cash and CA$2.28m in receivables that were due within 12 months. So it has liabilities totalling CA$9.06m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Replenish Nutrients Holding is worth CA$21.7m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Replenish Nutrients Holding 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.

Check out our latest analysis for Replenish Nutrients Holding

In the last year Replenish Nutrients Holding had a loss before interest and tax, and actually shrunk its revenue by 19%, to CA$6.4m. That's not what we would hope to see.

Caveat Emptor

Not only did Replenish Nutrients Holding's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable CA$4.5m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$3.4m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 4 warning signs with Replenish Nutrients Holding (at least 1 which is significant) , and understanding them should be part of your investment process.

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.