Is Laramide Resources (TSE:LAM) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Laramide Resources Ltd. (TSE:LAM) makes use of debt. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Laramide Resources

How Much Debt Does Laramide Resources Carry?

You can click the graphic below for the historical numbers, but it shows that Laramide Resources had CA$5.92m of debt in September 2022, down from CA$7.51m, one year before. However, it does have CA$8.13m in cash offsetting this, leading to net cash of CA$2.21m.

How Strong Is Laramide Resources' Balance Sheet?

According to the last reported balance sheet, Laramide Resources had liabilities of CA$9.02m due within 12 months, and liabilities of CA$3.72m due beyond 12 months. Offsetting these obligations, it had cash of CA$8.13m as well as receivables valued at CA$68.4k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$4.54m.

Since publicly traded Laramide Resources shares are worth a total of CA$93.5m, it seems unlikely that this level of liabilities would be a major threat. 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, Laramide Resources also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

Since Laramide Resources doesn't have significant operating revenue, shareholders must hope it'll sell some fossil fuels, before it runs out of money.

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 we do note that Laramide Resources had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$5.1m of cash and made a loss of CA$2.3m. With only CA$2.21m 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. 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. To that end, you should learn about the 5 warning signs we've spotted with Laramide Resources (including 2 which are potentially serious) .

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.