Is Condor Energies (TSE:CDR) Using Too Much Debt?

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.' 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. We note that Condor Energies Inc. (TSE:CDR) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Condor Energies

What Is Condor Energies's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Condor Energies had CA$6.01m of debt, an increase on none, over one year. However, its balance sheet shows it holds CA$6.97m in cash, so it actually has CA$957.0k net cash.

How Healthy Is Condor Energies' Balance Sheet?

We can see from the most recent balance sheet that Condor Energies had liabilities of CA$940.0k falling due within a year, and liabilities of CA$7.51m due beyond that. Offsetting this, it had CA$6.97m in cash and CA$59.0k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$1.42m.

Having regard to Condor Energies' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CA$128.4m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Condor Energies also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Condor Energies 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.

In the last year Condor Energies had a loss before interest and tax, and actually shrunk its revenue by 38%, to CA$1.5m. To be frank that doesn't bode well.

So How Risky Is Condor Energies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Condor Energies had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$4.9m of cash and made a loss of CA$4.7m. But at least it has CA$957.0k on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Condor Energies has 4 warning signs (and 1 which can't be ignored) we think you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.