Yahoo Finance We Think Osisko Gold Royalties (TSE:OR) Has A Fair Chunk Of 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.' 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, Osisko Gold Royalties Ltd (TSE:OR) does carry debt. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for Osisko Gold Royalties
What Is Osisko Gold Royalties's Net Debt?
As you can see below, Osisko Gold Royalties had CA$326.1m of debt at June 2019, down from CA$419.2m a year prior. However, it also had CA$99.8m in cash, and so its net debt is CA$226.3m.
How Strong Is Osisko Gold Royalties's Balance Sheet?
The latest balance sheet data shows that Osisko Gold Royalties had liabilities of CA$93.6m due within a year, and liabilities of CA$414.5m falling due after that. Offsetting this, it had CA$99.8m in cash and CA$12.8m in receivables that were due within 12 months. So its liabilities total CA$395.5m more than the combination of its cash and short-term receivables.
Given Osisko Gold Royalties has a market capitalization of CA$2.33b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Osisko Gold Royalties's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year Osisko Gold Royalties managed to grow its revenue by 4.1%, to CA$459m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
Caveat Emptor
Over the last twelve months Osisko Gold Royalties produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CA$160m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of-CA$141.5m into a profit. So in short it's a really risky stock. For riskier companies like Osisko Gold Royalties I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
