Citigold (ASX:CTO) Is Carrying A Fair Bit Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Citigold Corporation Limited (ASX:CTO) does use debt in its business. But should shareholders be worried about its use of debt?

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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 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Citigold's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Citigold had AU$4.65m of debt, an increase on AU$3.56m, over one year. On the flip side, it has AU$449.4k in cash leading to net debt of about AU$4.20m.

How Healthy Is Citigold's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Citigold had liabilities of AU$3.30m due within 12 months and liabilities of AU$17.0m due beyond that. Offsetting this, it had AU$449.4k in cash and AU$159.0k in receivables that were due within 12 months. So it has liabilities totalling AU$19.7m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of AU$27.0m, so it does suggest shareholders should keep an eye on Citigold's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Citigold's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

See our latest analysis for Citigold

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

Caveat Emptor

While Citigold's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at AU$1.7m. 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. However, it doesn't help that it burned through AU$1.1m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. For example Citigold has 5 warning signs (and 4 which are significant) we think 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.