Mincor Resources (ASX:MCR) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 Mincor Resources NL (ASX:MCR) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Mincor Resources

How Much Debt Does Mincor Resources Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Mincor Resources had AU$28.9m of debt, an increase on none, over one year. However, it does have AU$109.5m in cash offsetting this, leading to net cash of AU$80.7m.

How Healthy Is Mincor Resources' Balance Sheet?

The latest balance sheet data shows that Mincor Resources had liabilities of AU$29.9m due within a year, and liabilities of AU$62.0m falling due after that. On the other hand, it had cash of AU$109.5m and AU$948.0k worth of receivables due within a year. So it can boast AU$18.5m more liquid assets than total liabilities.

This state of affairs indicates that Mincor Resources' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the AU$1.07b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Mincor Resources has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Mincor Resources 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.

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

So How Risky Is Mincor Resources?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Mincor Resources 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$75m and booked a AU$22m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of AU$80.7m. That means it could keep spending at its current rate for more than two years. 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. For instance, we've identified 4 warning signs for Mincor Resources (1 makes us a bit uncomfortable) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.