EMP Metals (CSE:EMPS) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies EMP Metals Corp. (CSE:EMPS) makes use of debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is EMP Metals's Debt?

As you can see below, at the end of January 2025, EMP Metals had CA$2.80m of debt, up from none a year ago. Click the image for more detail. On the flip side, it has CA$1.94m in cash leading to net debt of about CA$867.8k.

A Look At EMP Metals' Liabilities

Zooming in on the latest balance sheet data, we can see that EMP Metals had liabilities of CA$3.17m due within 12 months and no liabilities due beyond that. On the other hand, it had cash of CA$1.94m and CA$770.4k worth of receivables due within a year. So it has liabilities totalling CA$461.1k more than its cash and near-term receivables, combined.

Having regard to EMP Metals' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CA$24.1m company is struggling for cash, we still think it's worth monitoring its balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since EMP Metals 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.

Check out our latest analysis for EMP Metals

Given its lack of meaningful operating revenue, investors are probably hoping that EMP Metals finds some valuable resources, before it runs out of money.

Caveat Emptor

Over the last twelve months EMP Metals produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping CA$2.6m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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 CA$11m 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. We've identified 6 warning signs with EMP Metals (at least 4 which make us uncomfortable) , and understanding them should be part of your investment process.

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.