We Think Jericho Energy Ventures (CVE:JEV) Has A Fair Chunk Of 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 Jericho Energy Ventures Inc. (CVE:JEV) makes use of debt. But the real question is whether this debt is making the company risky.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Jericho Energy Ventures

What Is Jericho Energy Ventures's Debt?

As you can see below, at the end of March 2024, Jericho Energy Ventures had US$4.05m of debt, up from US$3.26m a year ago. Click the image for more detail. However, it also had US$709.8k in cash, and so its net debt is US$3.34m.

How Healthy Is Jericho Energy Ventures' Balance Sheet?

According to the last reported balance sheet, Jericho Energy Ventures had liabilities of US$5.70m due within 12 months, and liabilities of US$29.8k due beyond 12 months. Offsetting this, it had US$709.8k in cash and US$35.7k in receivables that were due within 12 months. So its liabilities total US$4.98m more than the combination of its cash and short-term receivables.

Since publicly traded Jericho Energy Ventures shares are worth a total of US$28.4m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Jericho Energy Ventures'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.

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

Caveat Emptor

Over the last twelve months Jericho Energy Ventures produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$5.0m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$3.7m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 6 warning signs for Jericho Energy Ventures (2 don't sit too well with us!) that you should be aware of before investing here.

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.