Does Mene (CVE:MENE) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Mene Inc. (CVE:MENE) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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, 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 step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Mene

What Is Mene's Debt?

As you can see below, at the end of December 2022, Mene had CA$11.5m of debt, up from CA$10.4m a year ago. Click the image for more detail. But it also has CA$13.0m in cash to offset that, meaning it has CA$1.49m net cash.

How Strong Is Mene's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Mene had liabilities of CA$13.5m due within 12 months and liabilities of CA$738.0k due beyond that. On the other hand, it had cash of CA$13.0m and CA$127.6k worth of receivables due within a year. So it has liabilities totalling CA$1.15m more than its cash and near-term receivables, combined.

Having regard to Mene's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CA$77.9m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Mene 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 you can't view debt in total isolation; since Mene will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Mene saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

So How Risky Is Mene?

While Mene lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CA$4.6m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. We've identified 2 warning signs with Mene , and understanding them should be part of your investment process.

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.