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

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.' 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 the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for BCI Minerals

What Is BCI Minerals's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 BCI Minerals had AU$113.1m of debt, an increase on AU$102.5m, over one year. However, its balance sheet shows it holds AU$265.6m in cash, so it actually has AU$152.5m net cash.

How Healthy Is BCI Minerals' Balance Sheet?

According to the last reported balance sheet, BCI Minerals had liabilities of AU$103.0m due within 12 months, and liabilities of AU$113.3m due beyond 12 months. On the other hand, it had cash of AU$265.6m and AU$5.02m worth of receivables due within a year. So it actually has AU$54.4m more liquid assets than total liabilities.

This short term liquidity is a sign that BCI Minerals could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that BCI Minerals has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine BCI Minerals'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.

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

So How Risky Is BCI Minerals?

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 BCI Minerals lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through AU$243m of cash and made a loss of AU$49m. But at least it has AU$152.5m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for BCI Minerals (2 make us uncomfortable!) that you should be aware of before investing here.

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.

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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.