Would EMP Metals (CSE:EMPS) Be Better Off With Less Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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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When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is EMP Metals's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of January 2025 EMP Metals had CA$2.80m of debt, an increase on none, over one year. 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 its liabilities total CA$461.1k more than the combination of its cash and short-term receivables.

Having regard to EMP Metals' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CA$32.2m company is short on cash, but still worth keeping an eye on the balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since EMP Metals will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

Check out our latest analysis for EMP Metals

Since EMP Metals has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

Caveat Emptor

Importantly, EMP Metals had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CA$2.6m. 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. Another cause for caution is that is bled CA$11m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 6 warning signs for EMP Metals (of which 3 can't be ignored!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.