We Think St-Georges Eco-Mining (CSE:SX) Has A Fair Chunk Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies St-Georges Eco-Mining Corp. (CSE:SX) makes use of debt. But is this debt a concern to shareholders?

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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for St-Georges Eco-Mining

How Much Debt Does St-Georges Eco-Mining Carry?

The image below, which you can click on for greater detail, shows that St-Georges Eco-Mining had debt of CA$4.62m at the end of December 2023, a reduction from CA$11.2m over a year. However, it also had CA$1.69m in cash, and so its net debt is CA$2.93m.

A Look At St-Georges Eco-Mining's Liabilities

According to the last reported balance sheet, St-Georges Eco-Mining had liabilities of CA$8.40m due within 12 months, and liabilities of CA$1.26m due beyond 12 months. 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$19.5m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

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

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$2.7m 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. 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 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. Be aware that St-Georges Eco-Mining is showing 5 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.