Is Cerro de Pasco Resources (CSE:CDPR) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We can see that Cerro de Pasco Resources Inc. (CSE:CDPR) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Cerro de Pasco Resources

How Much Debt Does Cerro de Pasco Resources Carry?

As you can see below, Cerro de Pasco Resources had US$3.11m of debt at December 2024, down from US$5.19m a year prior. But it also has US$10.8m in cash to offset that, meaning it has US$7.67m net cash.

A Look At Cerro de Pasco Resources' Liabilities

The latest balance sheet data shows that Cerro de Pasco Resources had liabilities of US$6.98m due within a year, and liabilities of US$2.27m falling due after that. Offsetting this, it had US$10.8m in cash and US$466.6k in receivables that were due within 12 months. So it can boast US$1.99m more liquid assets than total liabilities.

This short term liquidity is a sign that Cerro de Pasco Resources could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Cerro de Pasco Resources has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Cerro de Pasco Resources will need earnings to service that debt. 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.

Over 12 months, Cerro de Pasco Resources made a loss at the EBIT level, and saw its revenue drop to US$15m, which is a fall of 23%. That makes us nervous, to say the least.

So How Risky Is Cerro de Pasco Resources?

Although Cerro de Pasco Resources had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$13m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. Be aware that Cerro de Pasco Resources is showing 3 warning signs in our investment analysis , and 1 of those 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.