Yahoo Finance Does Metalla Royalty & Streaming (CVE:MTA) Have A Healthy Balance Sheet?
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Metalla Royalty & Streaming Ltd. (CVE:MTA) does carry debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.
View our latest analysis for Metalla Royalty & Streaming
What Is Metalla Royalty & Streaming's Debt?
The image below, which you can click on for greater detail, shows that at August 2020 Metalla Royalty & Streaming had debt of CA$4.45m, up from CA$4.24m in one year. However, it does have CA$8.49m in cash offsetting this, leading to net cash of CA$4.04m.
How Healthy Is Metalla Royalty & Streaming's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Metalla Royalty & Streaming had liabilities of CA$1.02m due within 12 months and liabilities of CA$5.08m due beyond that. Offsetting this, it had CA$8.49m in cash and CA$488.0k in receivables that were due within 12 months. So it can boast CA$2.87m more liquid assets than total liabilities.
This state of affairs indicates that Metalla Royalty & Streaming's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CA$477.7m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Metalla Royalty & Streaming boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Metalla Royalty & Streaming'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.
Over 12 months, Metalla Royalty & Streaming made a loss at the EBIT level, and saw its revenue drop to CA$3.9m, which is a fall of 5.2%. We would much prefer see growth.
So How Risky Is Metalla Royalty & Streaming?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Metalla Royalty & Streaming lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CA$8.2m and booked a CA$8.0m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CA$4.04m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 5 warning signs with Metalla Royalty & Streaming (at least 1 which can't be ignored) , and understanding them should be part of your investment process.
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.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
