Is Horizon Minerals (ASX:HRZ) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Horizon Minerals Limited (ASX:HRZ) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Horizon Minerals's Debt?

You can click the graphic below for the historical numbers, but it shows that Horizon Minerals had AU$7.78m of debt in June 2025, down from AU$8.19m, one year before. But on the other hand it also has AU$15.8m in cash, leading to a AU$7.98m net cash position.

How Healthy Is Horizon Minerals' Balance Sheet?

According to the last reported balance sheet, Horizon Minerals had liabilities of AU$28.4m due within 12 months, and liabilities of AU$82.5m due beyond 12 months. Offsetting this, it had AU$15.8m in cash and AU$2.48m in receivables that were due within 12 months. So its liabilities total AU$92.7m more than the combination of its cash and short-term receivables.

Horizon Minerals has a market capitalization of AU$174.9m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Horizon Minerals boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Horizon Minerals can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for Horizon Minerals

In the last year Horizon Minerals managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is Horizon Minerals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Horizon Minerals had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through AU$21m of cash and made a loss of AU$24m. Given it only has net cash of AU$7.98m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 instance, we've identified 2 warning signs for Horizon Minerals that you should be aware of.

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.