Here's Why St-Georges Eco-Mining (CSE:SX) Can Afford Some Debt

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

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 St-Georges Eco-Mining had debt of CA$4.41m at the end of June 2023, a reduction from CA$10.4m over a year. And it doesn't have much cash, so its net debt is about the same.

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$8.72m due within a year, and liabilities of CA$1.26m falling due after that. On the other hand, it had cash of CA$76.9k and CA$529.7k worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$9.37m.

This deficit isn't so bad because St-Georges Eco-Mining is worth CA$22.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

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

Caveat Emptor

Over the last twelve months St-Georges Eco-Mining produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CA$3.5m at the EBIT level. 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. However, it doesn't help that it burned through CA$8.0m of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with St-Georges Eco-Mining (at least 1 which shouldn't be ignored) , 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.