Is Alamos Gold (TSE:AGI) A Risky Investment?

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. Importantly, Alamos Gold Inc. (TSE:AGI) does carry debt. But should shareholders be worried about its use of debt?

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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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Alamos Gold Carry?

The image below, which you can click on for greater detail, shows that at March 2025 Alamos Gold had debt of US$250.0m, up from none in one year. However, its balance sheet shows it holds US$318.7m in cash, so it actually has US$68.7m net cash.

A Look At Alamos Gold's Liabilities

Zooming in on the latest balance sheet data, we can see that Alamos Gold had liabilities of US$410.6m due within 12 months and liabilities of US$1.36b due beyond that. Offsetting these obligations, it had cash of US$318.7m as well as receivables valued at US$36.6m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.41b.

Of course, Alamos Gold has a titanic market capitalization of US$10.9b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Alamos Gold also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Alamos Gold

In addition to that, we're happy to report that Alamos Gold has boosted its EBIT by 55%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Alamos Gold's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Alamos Gold may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Alamos Gold's free cash flow amounted to 37% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While Alamos Gold does have more liabilities than liquid assets, it also has net cash of US$68.7m. And we liked the look of last year's 55% year-on-year EBIT growth. So we don't think Alamos Gold's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Alamos Gold that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.