Is Asra Minerals (ASX:ASR) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Asra Minerals Limited (ASX:ASR) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for Asra Minerals

What Is Asra Minerals's Debt?

As you can see below, at the end of December 2022, Asra Minerals had AU$2.51m of debt, up from AU$2.23m a year ago. Click the image for more detail. But it also has AU$2.61m in cash to offset that, meaning it has AU$97.1k net cash.

How Strong Is Asra Minerals' Balance Sheet?

According to the balance sheet data, Asra Minerals had liabilities of AU$3.43m due within 12 months, but no longer term liabilities. Offsetting this, it had AU$2.61m in cash and AU$640.4k in receivables that were due within 12 months. So its liabilities total AU$182.2k more than the combination of its cash and short-term receivables.

This state of affairs indicates that Asra Minerals' 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 AU$14.7m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Asra Minerals 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 it is Asra Minerals'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.

Given its lack of meaningful operating revenue, investors are probably hoping that Asra Minerals finds some valuable resources, before it runs out of money.

So How Risky Is Asra Minerals?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Asra Minerals had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through AU$6.8m of cash and made a loss of AU$4.6m. With only AU$97.1k on the balance sheet, it would appear that its going to need to raise capital again soon. 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. These risks can be hard to spot. Every company has them, and we've spotted 6 warning signs for Asra Minerals (of which 5 can't be ignored!) you should know about.

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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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.