Health Check: How Prudently Does St-Georges Eco-Mining (CSE:SX) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 St-Georges Eco-Mining Corp. (CSE:SX) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for St-Georges Eco-Mining

What Is St-Georges Eco-Mining's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2021 St-Georges Eco-Mining had debt of CA$11.4m, up from CA$8.02m in one year. But it also has CA$12.2m in cash to offset that, meaning it has CA$773.4k net cash.

How Healthy Is St-Georges Eco-Mining's Balance Sheet?

The latest balance sheet data shows that St-Georges Eco-Mining had liabilities of CA$8.04m due within a year, and liabilities of CA$7.81m falling due after that. Offsetting these obligations, it had cash of CA$12.2m as well as receivables valued at CA$1.13m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$2.55m.

Given St-Georges Eco-Mining has a market capitalization of CA$53.1m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, St-Georges Eco-Mining also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since St-Georges Eco-Mining 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.

Since St-Georges Eco-Mining has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

So How Risky Is St-Georges Eco-Mining?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year St-Georges Eco-Mining had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CA$8.1m and booked a CA$3.8m accounting loss. Given it only has net cash of CA$773.4k, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 St-Georges Eco-Mining has 6 warning signs (and 3 which can't be ignored) we think you should know about.

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.
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