Does Condor Energies (TSE:CDR) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Condor Energies Inc. (TSE:CDR) does carry debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

How Much Debt Does Condor Energies Carry?

As you can see below, at the end of December 2024, Condor Energies had CA$14.7m of debt, up from CA$6.02m a year ago. Click the image for more detail. However, it does have CA$27.8m in cash offsetting this, leading to net cash of CA$13.1m.

A Look At Condor Energies' Liabilities

The latest balance sheet data shows that Condor Energies had liabilities of CA$21.7m due within a year, and liabilities of CA$23.8m falling due after that. On the other hand, it had cash of CA$27.8m and CA$18.0m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Condor Energies' 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 CA$112.7m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Condor Energies has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Condor Energies

We also note that Condor Energies improved its EBIT from a last year's loss to a positive CA$9.4m. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Condor Energies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Condor Energies 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. During the last year, Condor Energies burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Condor Energies has net cash of CA$13.1m, as well as more liquid assets than liabilities. So we are not troubled with Condor Energies's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Condor Energies you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.