Does BCI Minerals (ASX:BCI) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies BCI Minerals Limited (ASX:BCI) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is BCI Minerals's Net Debt?

The image below, which you can click on for greater detail, shows that BCI Minerals had debt of AU$130.0m at the end of December 2024, a reduction from AU$192.3m over a year. However, because it has a cash reserve of AU$70.1m, its net debt is less, at about AU$59.9m.

A Look At BCI Minerals' Liabilities

We can see from the most recent balance sheet that BCI Minerals had liabilities of AU$45.1m falling due within a year, and liabilities of AU$130.0m due beyond that. Offsetting these obligations, it had cash of AU$70.1m as well as receivables valued at AU$39.5m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$65.5m.

Of course, BCI Minerals has a market capitalization of AU$750.8m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if BCI Minerals 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.

View our latest analysis for BCI Minerals

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

Caveat Emptor

Over the last twelve months BCI Minerals produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at AU$60m. 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through AU$349m of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for BCI Minerals (2 are concerning!) that you should be aware of before investing here.

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.