Yahoo Finance Getty Copper (CVE:GTC) Debt But No Earnings
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.' 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. As with many other companies Getty Copper Inc. (CVE:GTC) makes use of debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for Getty Copper
What Is Getty Copper's Net Debt?
As you can see below, at the end of March 2019, Getty Copper had CA$1.49m of debt, up from CA$1.30m a year ago. Click the image for more detail. Net debt is about the same, since the it doesn't have much cash.
How Healthy Is Getty Copper's Balance Sheet?
We can see from the most recent balance sheet that Getty Copper had liabilities of CA$929.4k falling due within a year, and liabilities of CA$1.06m due beyond that. Offsetting these obligations, it had cash of CA$7.7k as well as receivables valued at CA$583 due within 12 months. So its liabilities total CA$1.98m more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Getty Copper has a market capitalization of CA$3.79m, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Getty 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.
Since Getty Copper has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.
Caveat Emptor
Importantly, Getty Copper had negative earnings before interest and tax (EBIT), over the last year. To be specific the EBIT loss came in at CA$130k. 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. However, it doesn't help that it burned through CA$119k of cash over the last year. So suffice it to say we do consider the stock to be risky. For riskier companies like Getty 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.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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