We Think Rubicon Organics (CVE:ROMJ) Is Taking Some Risk With Its 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 Rubicon Organics Inc. (CVE:ROMJ) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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.

What Is Rubicon Organics's Debt?

As you can see below, Rubicon Organics had CA$9.45m of debt at June 2025, down from CA$10.8m a year prior. However, it also had CA$9.05m in cash, and so its net debt is CA$403.8k.

A Look At Rubicon Organics' Liabilities

According to the last reported balance sheet, Rubicon Organics had liabilities of CA$11.1m due within 12 months, and liabilities of CA$8.13m due beyond 12 months. Offsetting these obligations, it had cash of CA$9.05m as well as receivables valued at CA$6.55m due within 12 months. So it has liabilities totalling CA$3.59m more than its cash and near-term receivables, combined.

Given Rubicon Organics has a market capitalization of CA$31.2m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, Rubicon Organics has a very light debt load indeed.

View our latest analysis for Rubicon Organics

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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Rubicon Organics's debt of just 0.09 times EBITDA is clearly modest. But strangely, EBIT was only 1.4 times interest expenses, suggesting the that may paint an overly pretty picture of the stock. Notably, Rubicon Organics made a loss at the EBIT level, last year, but improved that to positive EBIT of CA$1.3m in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Rubicon Organics 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. So it's worth checking how much of the earnings before interest and tax (EBIT) is backed by free cash flow. During the last year, Rubicon Organics burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

Both Rubicon Organics's conversion of EBIT to free cash flow and its interest cover were discouraging. But on the brighter side of life, its net debt to EBITDA leaves us feeling more frolicsome. When we consider all the factors discussed, it seems to us that Rubicon Organics is taking some risks with its use of debt. So while that leverage does boost returns on equity, we wouldn't really want to see it increase from here. When analysing debt levels, the balance sheet is the obvious place to start. 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 2 warning signs for Rubicon Organics 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.

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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.