Does GBM Resources (ASX:GBZ) Have A Healthy Balance Sheet?

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.' 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. We note that GBM Resources Limited (ASX:GBZ) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

We've discovered 4 warning signs about GBM Resources. View them for free.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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.

How Much Debt Does GBM Resources Carry?

As you can see below, GBM Resources had AU$6.14m of debt at December 2024, down from AU$7.45m a year prior. However, because it has a cash reserve of AU$1.26m, its net debt is less, at about AU$4.87m.

A Look At GBM Resources' Liabilities

According to the last reported balance sheet, GBM Resources had liabilities of AU$14.0m due within 12 months, and liabilities of AU$9.06m due beyond 12 months. Offsetting this, it had AU$1.26m in cash and AU$11.1k in receivables that were due within 12 months. So its liabilities total AU$21.7m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the AU$9.37m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, GBM Resources would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since GBM Resources will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for GBM Resources

Since GBM Resources has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

Caveat Emptor

Importantly, GBM Resources had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable AU$1.9m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of AU$3.7m over the last twelve months. So suffice it to say we consider the stock to be risky. 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. Be aware that GBM Resources is showing 4 warning signs in our investment analysis , you should know about...

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.