Yahoo Finance Laramide Resources (TSE:LAM) Has Debt But No Earnings; Should You Worry?
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.' 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. We note that Laramide Resources Ltd. (TSE:LAM) does have debt on its balance sheet. But is this debt a concern to shareholders?
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. 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. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Laramide Resources
What Is Laramide Resources's Net Debt?
As you can see below, Laramide Resources had CA$6.63m of debt at December 2021, down from CA$7.15m a year prior. However, its balance sheet shows it holds CA$8.48m in cash, so it actually has CA$1.85m net cash.
How Strong Is Laramide Resources' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Laramide Resources had liabilities of CA$7.94m due within 12 months and liabilities of CA$9.91m due beyond that. Offsetting this, it had CA$8.48m in cash and CA$106.2k in receivables that were due within 12 months. So its liabilities total CA$9.26m more than the combination of its cash and short-term receivables.
Since publicly traded Laramide Resources shares are worth a total of CA$160.3m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Laramide Resources boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Laramide Resources will need earnings to service that debt. 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, Laramide Resources shareholders no doubt hope it can fund itself until it can sell some combustibles.
So How Risky Is Laramide Resources?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year Laramide Resources had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CA$4.2m and booked a CA$8.9m accounting loss. Given it only has net cash of CA$1.85m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For instance, we've identified 5 warning signs for Laramide Resources (2 are significant) you should be aware of.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
