Yahoo Finance Is Almaden Minerals (TSE:AMM) Using Debt Sensibly?
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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Almaden Minerals Ltd. (TSE:AMM) does carry debt. But the more important question is: how much risk is that debt creating?
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 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Almaden Minerals
How Much Debt Does Almaden Minerals Carry?
The image below, which you can click on for greater detail, shows that at June 2022 Almaden Minerals had debt of CA$3.50m, up from CA$2.96m in one year. However, it does have CA$8.09m in cash offsetting this, leading to net cash of CA$4.59m.
How Strong Is Almaden Minerals' Balance Sheet?
The latest balance sheet data shows that Almaden Minerals had liabilities of CA$587.7k due within a year, and liabilities of CA$6.26m falling due after that. On the other hand, it had cash of CA$8.09m and CA$104.9k worth of receivables due within a year. So it actually has CA$1.35m more liquid assets than total liabilities.
This surplus suggests that Almaden Minerals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Almaden Minerals boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Almaden Minerals'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.
Given its lack of meaningful operating revenue, investors are probably hoping that Almaden Minerals finds some valuable resources, before it runs out of money.
So How Risky Is Almaden Minerals?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Almaden Minerals had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CA$4.2m and booked a CA$3.4m accounting loss. Given it only has net cash of CA$4.59m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. To that end, you should learn about the 2 warning signs we've spotted with Almaden Minerals (including 1 which shouldn't be ignored) .
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.
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