Does Calidus Resources (ASX:CAI) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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, Calidus Resources Limited (ASX:CAI) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Calidus Resources

What Is Calidus Resources's Debt?

The image below, which you can click on for greater detail, shows that Calidus Resources had debt of AU$69.0m at the end of December 2023, a reduction from AU$102.0m over a year. However, it does have AU$9.04m in cash offsetting this, leading to net debt of about AU$60.0m.

How Healthy Is Calidus Resources' Balance Sheet?

The latest balance sheet data shows that Calidus Resources had liabilities of AU$67.9m due within a year, and liabilities of AU$115.0m falling due after that. Offsetting this, it had AU$9.04m in cash and AU$1.88m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$172.0m.

This deficit casts a shadow over the AU$101.1m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Calidus Resources would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Calidus Resources'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.

While it hasn't made a profit, at least Calidus Resources booked its first revenue as a publicly listed company, in the last twelve months.

Caveat Emptor

Over the last twelve months Calidus Resources produced an earnings before interest and tax (EBIT) loss. Indeed, it lost AU$10m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of AU$20m. And until that time we think this is a risky stock. 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 instance, we've identified 2 warning signs for Calidus Resources that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.