Is Genesis Minerals (ASX:GMD) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Genesis Minerals Limited (ASX:GMD) does carry debt. But is this debt a concern to shareholders?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Genesis Minerals Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Genesis Minerals had AU$186.6m of debt, an increase on AU$32.4m, over one year. However, its balance sheet shows it holds AU$239.5m in cash, so it actually has AU$52.9m net cash.

A Look At Genesis Minerals' Liabilities

We can see from the most recent balance sheet that Genesis Minerals had liabilities of AU$197.6m falling due within a year, and liabilities of AU$346.8m due beyond that. Offsetting this, it had AU$239.5m in cash and AU$12.7m in receivables that were due within 12 months. So it has liabilities totalling AU$292.2m more than its cash and near-term receivables, combined.

Of course, Genesis Minerals has a market capitalization of AU$6.06b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Genesis Minerals also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Genesis Minerals

Even more impressive was the fact that Genesis Minerals grew its EBIT by 507% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. 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 Genesis 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Genesis Minerals may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent two years, Genesis Minerals recorded free cash flow worth 57% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about Genesis Minerals's liabilities, but we can be reassured by the fact it has has net cash of AU$52.9m. And it impressed us with its EBIT growth of 507% over the last year. So we don't think Genesis Minerals's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Genesis Minerals, you may well want to click here to check an interactive graph of its earnings per share history.

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.