Does Laramide Resources (TSE:LAM) Have A Healthy 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Laramide Resources Ltd. (TSE:LAM) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Laramide Resources

What Is Laramide Resources's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Laramide Resources had CA$4.33m of debt in December 2023, down from CA$5.94m, one year before. But it also has CA$9.63m in cash to offset that, meaning it has CA$5.31m net cash.

How Healthy Is Laramide Resources' Balance Sheet?

According to the last reported balance sheet, Laramide Resources had liabilities of CA$5.21m due within 12 months, and liabilities of CA$7.75m due beyond 12 months. On the other hand, it had cash of CA$9.63m and CA$412.0k worth of receivables due within a year. So its liabilities total CA$2.92m more than the combination of its cash and short-term receivables.

Having regard to Laramide Resources' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CA$189.1m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Laramide Resources 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 it is Laramide Resources's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Given its lack of meaningful operating revenue, Laramide Resources shareholders no doubt hope it can fund itself until it can sell some combustibles.

So How Risky Is Laramide Resources?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Laramide Resources lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CA$9.8m and booked a CA$4.7m accounting loss. With only CA$5.31m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 4 warning signs we've spotted with Laramide Resources (including 2 which shouldn't be ignored) .

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.