Is Altus Group (TSE:AIF) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. We can see that Altus Group Limited (TSE:AIF) does use debt in its business. But should shareholders be worried about its use of debt?

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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. 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. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Altus Group's Net Debt?

As you can see below, Altus Group had CA$157.6m of debt at March 2025, down from CA$327.5m a year prior. However, its balance sheet shows it holds CA$491.9m in cash, so it actually has CA$334.3m net cash.

How Healthy Is Altus Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Altus Group had liabilities of CA$277.1m due within 12 months and liabilities of CA$219.7m due beyond that. Offsetting these obligations, it had cash of CA$491.9m as well as receivables valued at CA$149.5m due within 12 months. So it can boast CA$144.7m more liquid assets than total liabilities.

This surplus suggests that Altus Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Altus Group has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Altus Group

Notably, Altus Group's EBIT launched higher than Elon Musk, gaining a whopping 573% on last year. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Altus Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Altus 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 three years, Altus Group actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Altus Group has net cash of CA$334.3m, as well as more liquid assets than liabilities. The cherry on top was that in converted 163% of that EBIT to free cash flow, bringing in CA$78m. So is Altus Group's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 1 warning sign for Altus Group that you should be aware of before investing here.

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.