St-Georges Eco-Mining (CSE:SX) Is Making Moderate Use Of Debt

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.' 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. We can see that St-Georges Eco-Mining Corp. (CSE:SX) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 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$11.2m at the end of December 2022, a reduction from CA$12.4m over a year. However, it also had CA$3.86m in cash, and so its net debt is CA$7.34m.

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

Zooming in on the latest balance sheet data, we can see that St-Georges Eco-Mining had liabilities of CA$9.17m due within 12 months and liabilities of CA$6.60m due beyond that. Offsetting this, it had CA$3.86m in cash and CA$703.7k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$11.2m.

While this might seem like a lot, it is not so bad since St-Georges Eco-Mining has a market capitalization of CA$36.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. 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. Its EBIT loss was a whopping CA$4.2m. 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$5.5m of cash over the last year. So in short it's a really risky stock. 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. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for St-Georges Eco-Mining (of which 3 shouldn't be ignored!) you should know about.

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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