Yahoo Finance Is Los Andes Copper (CVE:LA) Using Too Much Debt?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, Los Andes Copper Ltd. (CVE:LA) does carry debt. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Los Andes Copper
How Much Debt Does Los Andes Copper Carry?
The image below, which you can click on for greater detail, shows that at September 2021 Los Andes Copper had debt of CA$6.28m, up from none in one year. However, it does have CA$8.77m in cash offsetting this, leading to net cash of CA$2.49m.
How Strong Is Los Andes Copper's Balance Sheet?
According to the last reported balance sheet, Los Andes Copper had liabilities of CA$969.0k due within 12 months, and liabilities of CA$15.1m due beyond 12 months. Offsetting these obligations, it had cash of CA$8.77m as well as receivables valued at CA$7.7k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$7.31m.
This state of affairs indicates that Los Andes Copper's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CA$437.5m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Los Andes Copper 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 ultimately the future profitability of the business will decide if Los Andes Copper can strengthen its balance sheet over time. 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 Los Andes Copper finds some valuable resources, before it runs out of money.
So How Risky Is Los Andes Copper?
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 Los Andes Copper lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$1.2m of cash and made a loss of CA$1.6m. But the saving grace is the CA$2.49m on the balance sheet. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example, we've discovered 3 warning signs for Los Andes Copper (2 don't sit too well with us!) that you should be aware of before investing here.
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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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.
