Is Pilbara Minerals (ASX:PLS) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Pilbara Minerals Limited (ASX:PLS) makes use of debt. But is this debt a concern to shareholders?

We check all companies for important risks. See what we found for Pilbara Minerals in our free report.

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Pilbara Minerals's Net Debt?

As you can see below, Pilbara Minerals had AU$455.0m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have AU$1.17b in cash offsetting this, leading to net cash of AU$716.0m.

A Look At Pilbara Minerals' Liabilities

According to the last reported balance sheet, Pilbara Minerals had liabilities of AU$204.4m due within 12 months, and liabilities of AU$801.6m due beyond 12 months. On the other hand, it had cash of AU$1.17b and AU$114.2m worth of receivables due within a year. So it actually has AU$279.2m more liquid assets than total liabilities.

This short term liquidity is a sign that Pilbara Minerals could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Pilbara Minerals boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Pilbara Minerals 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.

Check out our latest analysis for Pilbara Minerals

Over 12 months, Pilbara Minerals made a loss at the EBIT level, and saw its revenue drop to AU$923m, which is a fall of 65%. That makes us nervous, to say the least.

So How Risky Is Pilbara Minerals?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Pilbara Minerals had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through AU$917m of cash and made a loss of AU$33m. With only AU$716.0m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Pilbara Minerals insider transactions.

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.