WEBULL

Here's Why Rumbu Holdings (CVE:RMB) Has A Meaningful Debt Burden

Simply Wall St · 5d ago

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. Importantly, Rumbu Holdings Ltd. (CVE:RMB) does carry debt. But the real question is whether this debt is making the company risky.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Rumbu Holdings Carry?

The image below, which you can click on for greater detail, shows that at September 2025 Rumbu Holdings had debt of CA$7.25m, up from CA$4.55m in one year. However, it also had CA$784.9k in cash, and so its net debt is CA$6.46m.

debt-equity-history-analysis
TSXV:RMB Debt to Equity History January 6th 2026

How Strong Is Rumbu Holdings' Balance Sheet?

We can see from the most recent balance sheet that Rumbu Holdings had liabilities of CA$7.46m falling due within a year, and liabilities of CA$2.23m due beyond that. Offsetting this, it had CA$784.9k in cash and CA$527.9k in receivables that were due within 12 months. So it has liabilities totalling CA$8.37m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of CA$12.9m, so it does suggest shareholders should keep an eye on Rumbu Holdings' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution.

View our latest analysis for Rumbu Holdings

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Rumbu Holdings shareholders face the double whammy of a high net debt to EBITDA ratio (16.6), and fairly weak interest coverage, since EBIT is just 0.092 times the interest expense. The debt burden here is substantial. Fortunately, Rumbu Holdings grew its EBIT by 7.0% in the last year, slowly shrinking its debt relative to earnings. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Rumbu 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Happily for any shareholders, Rumbu Holdings actually produced more free cash flow than EBIT over the last two years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Our View

Neither Rumbu Holdings's ability to cover its interest expense with its EBIT nor its net debt to EBITDA gave us confidence in its ability to take on more debt. But its conversion of EBIT to free cash flow tells a very different story, and suggests some resilience. Looking at all the angles mentioned above, it does seem to us that Rumbu Holdings is a somewhat risky investment as a result of its debt. That's not necessarily a bad thing, since leverage can boost returns on equity, but it is something to be aware of. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with Rumbu Holdings (including 2 which make us uncomfortable) .

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.