Ora Banda Mining (ASX:OBM) Seems To Use Debt Quite Sensibly

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Ora Banda Mining Limited (ASX:OBM) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Ora Banda Mining's Net Debt?

The chart below, which you can click on for greater detail, shows that Ora Banda Mining had AU$4.00m in debt in June 2025; about the same as the year before. But it also has AU$84.2m in cash to offset that, meaning it has AU$80.2m net cash.

How Strong Is Ora Banda Mining's Balance Sheet?

We can see from the most recent balance sheet that Ora Banda Mining had liabilities of AU$122.7m falling due within a year, and liabilities of AU$35.3m due beyond that. Offsetting these obligations, it had cash of AU$84.2m as well as receivables valued at AU$10.3m due within 12 months. So its liabilities total AU$63.6m more than the combination of its cash and short-term receivables.

Since publicly traded Ora Banda Mining shares are worth a total of AU$2.15b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Ora Banda Mining boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Ora Banda Mining

Better yet, Ora Banda Mining grew its EBIT by 422% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. 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 Ora Banda Mining 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Ora Banda Mining 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. In the last two years, Ora Banda Mining's free cash flow amounted to 32% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Ora Banda Mining has AU$80.2m in net cash. And it impressed us with its EBIT growth of 422% over the last year. So is Ora Banda Mining's debt a risk? It doesn't seem so to us. 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 be aware of the 2 warning signs we've spotted with Ora Banda Mining .

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.