Health Check: How Prudently Does Avino Silver & Gold Mines (TSE:ASM) Use 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.' 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. As with many other companies Avino Silver & Gold Mines Ltd. (TSE:ASM) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

See our latest analysis for Avino Silver & Gold Mines

What Is Avino Silver & Gold Mines's Debt?

You can click the graphic below for the historical numbers, but it shows that Avino Silver & Gold Mines had US$1.69m of debt in March 2021, down from US$5.28m, one year before. But on the other hand it also has US$27.0m in cash, leading to a US$25.3m net cash position.

How Healthy Is Avino Silver & Gold Mines' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Avino Silver & Gold Mines had liabilities of US$4.24m due within 12 months and liabilities of US$3.51m due beyond that. Offsetting these obligations, it had cash of US$27.0m as well as receivables valued at US$5.86m due within 12 months. So it can boast US$25.1m more liquid assets than total liabilities.

It's good to see that Avino Silver & Gold Mines has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Avino Silver & Gold Mines has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Avino Silver & Gold Mines can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Avino Silver & Gold Mines had a loss before interest and tax, and actually shrunk its revenue by 72%, to US$8.9m. To be frank that doesn't bode well.

So How Risky Is Avino Silver & Gold Mines?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Avino Silver & Gold Mines had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$2.8m of cash and made a loss of US$9.1m. Given it only has net cash of US$25.3m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Case in point: We've spotted 1 warning sign for Avino Silver & Gold Mines you should be aware of.

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.

If you’re looking to trade a wide range of investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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