St-Georges Eco-Mining (CSE:SX) Is Making Moderate Use Of 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.' 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. Importantly, St-Georges Eco-Mining Corp. (CSE:SX) does carry debt. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for St-Georges Eco-Mining

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

You can click the graphic below for the historical numbers, but it shows that St-Georges Eco-Mining had CA$4.62m of debt in December 2023, down from CA$11.2m, one year before. However, it does have CA$1.69m in cash offsetting this, leading to net debt of about CA$2.93m.

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$8.40m due within a year, and liabilities of CA$1.26m falling due after that. Offsetting these obligations, it had cash of CA$1.69m as well as receivables valued at CA$386.3k due within 12 months. So it has liabilities totalling CA$7.58m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since St-Georges Eco-Mining has a market capitalization of CA$16.7m, 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 it is St-Georges Eco-Mining's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Given its lack of meaningful operating revenue, investors are probably hoping that St-Georges Eco-Mining finds some valuable resources, before it runs out of money.

Caveat Emptor

Importantly, St-Georges Eco-Mining had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping CA$2.7m. 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CA$5.9m 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. 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 2 don't sit too well with us!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com