These 4 Measures Indicate That Rectitude Holdings (NASDAQ:RECT) Is Using Debt Reasonably Well

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Rectitude Holdings Ltd (NASDAQ:RECT) 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?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Rectitude Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Rectitude Holdings had S$3.23m of debt in March 2025, down from S$3.67m, one year before. But it also has S$6.65m in cash to offset that, meaning it has S$3.41m net cash.

How Strong Is Rectitude Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Rectitude Holdings had liabilities of S$12.1m due within 12 months and liabilities of S$6.79m due beyond that. On the other hand, it had cash of S$6.65m and S$13.0m worth of receivables due within a year. So it can boast S$715.5k more liquid assets than total liabilities.

Having regard to Rectitude Holdings' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the S$88.2m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Rectitude Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Rectitude Holdings

The modesty of its debt load may become crucial for Rectitude Holdings if management cannot prevent a repeat of the 46% cut to EBIT over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. 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 Rectitude Holdings 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Rectitude Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Rectitude Holdings produced sturdy free cash flow equating to 64% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Rectitude Holdings has net cash of S$3.41m, as well as more liquid assets than liabilities. So we don't have any problem with Rectitude Holdings's use of debt. 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. Case in point: We've spotted 2 warning signs for Rectitude Holdings you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.