Is Hastings Technology Metals (ASX:HAS) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Hastings Technology Metals Limited (ASX:HAS) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Hastings Technology Metals

What Is Hastings Technology Metals's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 Hastings Technology Metals had AU$118.8m of debt, an increase on none, over one year. However, its balance sheet shows it holds AU$169.1m in cash, so it actually has AU$50.3m net cash.

A Look At Hastings Technology Metals' Liabilities

The latest balance sheet data shows that Hastings Technology Metals had liabilities of AU$16.2m due within a year, and liabilities of AU$154.6m falling due after that. Offsetting these obligations, it had cash of AU$169.1m as well as receivables valued at AU$9.67m due within 12 months. So it can boast AU$7.99m more liquid assets than total liabilities.

This surplus suggests that Hastings Technology Metals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Hastings Technology Metals 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 ultimately the future profitability of the business will decide if Hastings Technology Metals can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

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

So How Risky Is Hastings Technology Metals?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Hastings Technology Metals had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of AU$87m and booked a AU$14m accounting loss. With only AU$50.3m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. To that end, you should learn about the 3 warning signs we've spotted with Hastings Technology Metals (including 2 which don't sit too well with us) .

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.