Is Inter-Rock Minerals (CVE:IRO) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Inter-Rock Minerals Inc. (CVE:IRO) makes use of debt. But should shareholders be worried about its use of debt?

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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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Inter-Rock Minerals's Debt?

As you can see below, Inter-Rock Minerals had US$4.41m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$6.79m in cash, leading to a US$2.38m net cash position.

How Healthy Is Inter-Rock Minerals' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Inter-Rock Minerals had liabilities of US$8.65m due within 12 months and liabilities of US$5.75m due beyond that. Offsetting these obligations, it had cash of US$6.79m as well as receivables valued at US$8.37m due within 12 months. So it actually has US$762.0k more liquid assets than total liabilities.

This surplus suggests that Inter-Rock Minerals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Inter-Rock Minerals boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Inter-Rock Minerals

Inter-Rock Minerals grew its EBIT by 3.3% in the last year. Whilst that hardly knocks our socks off it is a positive when it comes to debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Inter-Rock Minerals's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Inter-Rock Minerals 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. In the last three years, Inter-Rock Minerals's free cash flow amounted to 44% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Inter-Rock Minerals has net cash of US$2.38m, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 3.3% in the last twelve months. So we don't have any problem with Inter-Rock Minerals's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example Inter-Rock Minerals has 3 warning signs (and 2 which are concerning) 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.