Yahoo Finance Cascadero Copper (CVE:CCD) May Be Weighed Down By Its Debt
Warren Buffett famously said, '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. We note that Cascadero Copper Corporation (CVE:CCD) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.
View our latest analysis for Cascadero Copper
What Is Cascadero Copper's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of February 2019 Cascadero Copper had CA$1.10m of debt, an increase on CA$114.4k, over one year. However, because it has a cash reserve of CA$560.8k, its net debt is less, at about CA$537.4k.
How Healthy Is Cascadero Copper's Balance Sheet?
According to the balance sheet data, Cascadero Copper had liabilities of CA$1.63m due within 12 months, but no longer term liabilities. Offsetting this, it had CA$560.8k in cash and CA$75.3k in receivables that were due within 12 months. So it has liabilities totalling CA$996.2k more than its cash and near-term receivables, combined.
While this might seem like a lot, it is not so bad since Cascadero Copper has a market capitalization of CA$3.56m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is Cascadero Copper's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Given its lack of meaningful operating revenue, investors are probably hoping that Cascadero Copper finds some valuable resources, before it runs out of money.
Caveat Emptor
Not only did Cascadero Copper's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping CA$1.1m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled CA$716k in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. For riskier companies like Cascadero Copper I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.
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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