Regis Resources (ASX:RRL) Has A Rock Solid Balance Sheet

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. As with many other companies Regis Resources Limited (ASX:RRL) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Regis Resources's Net Debt?

As you can see below, Regis Resources had AU$298.5m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has AU$514.6m in cash to offset that, meaning it has AU$216.1m net cash.

How Healthy Is Regis Resources' Balance Sheet?

We can see from the most recent balance sheet that Regis Resources had liabilities of AU$448.7m falling due within a year, and liabilities of AU$363.6m due beyond that. Offsetting these obligations, it had cash of AU$514.6m as well as receivables valued at AU$13.6m due within 12 months. So its liabilities total AU$284.1m more than the combination of its cash and short-term receivables.

Of course, Regis Resources has a market capitalization of AU$3.36b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Regis Resources also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Regis Resources

Pleasingly, Regis Resources is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 107% gain in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Regis 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Regis Resources has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Regis Resources actually produced more free cash flow than EBIT over the last two years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Regis Resources has AU$216.1m in net cash. The cherry on top was that in converted 1,595% of that EBIT to free cash flow, bringing in AU$477m. So is Regis Resources's debt a risk? It doesn't seem so to us. We'd be very excited to see if Regis Resources insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported 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.