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華爾街日報Health Check: How Prudently Does DIRTT Environmental Solutions (TSE:DRT) Use 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.' 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. Importantly, DIRTT Environmental Solutions Ltd. (TSE:DRT) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is DIRTT Environmental Solutions's Net Debt?
As you can see below, DIRTT Environmental Solutions had US$22.7m of debt, at September 2025, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$26.1m in cash, so it actually has US$3.45m net cash.
How Healthy Is DIRTT Environmental Solutions' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that DIRTT Environmental Solutions had liabilities of US$44.1m due within 12 months and liabilities of US$33.7m due beyond that. On the other hand, it had cash of US$26.1m and US$15.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$35.8m.
This deficit isn't so bad because DIRTT Environmental Solutions is worth US$134.3m, 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. While it does have liabilities worth noting, DIRTT Environmental Solutions also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 DIRTT Environmental Solutions's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Check out our latest analysis for DIRTT Environmental Solutions
In the last year DIRTT Environmental Solutions had a loss before interest and tax, and actually shrunk its revenue by 5.4%, to US$167m. We would much prefer see growth.
So How Risky Is DIRTT Environmental Solutions?
While DIRTT Environmental Solutions lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$7.3m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting DIRTT Environmental Solutions insider transactions.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.