Does Almaden Minerals (TSE:AMM) Have A Healthy Balance Sheet?

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. We note that Almaden Minerals Ltd. (TSE:AMM) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Almaden Minerals

How Much Debt Does Almaden Minerals Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Almaden Minerals had CA$4.33m of debt, an increase on CA$3.85m, over one year. But on the other hand it also has CA$4.67m in cash, leading to a CA$346.2k net cash position.

How Healthy Is Almaden Minerals' Balance Sheet?

The latest balance sheet data shows that Almaden Minerals had liabilities of CA$257.5k due within a year, and liabilities of CA$7.89m falling due after that. On the other hand, it had cash of CA$4.67m and CA$107.0k worth of receivables due within a year. So it has liabilities totalling CA$3.37m more than its cash and near-term receivables, combined.

Of course, Almaden Minerals has a market capitalization of CA$28.1m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Almaden Minerals also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Almaden Minerals 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 Almaden Minerals finds some valuable resources, before it runs out of money.

So How Risky Is Almaden Minerals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Almaden Minerals had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$2.5m of cash and made a loss of CA$12m. Given it only has net cash of CA$346.2k, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Case in point: We've spotted 4 warning signs for Almaden Minerals you should be aware of, and 2 of them shouldn't be ignored.

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.