These 4 Measures Indicate That Avino Silver & Gold Mines (TSE:ASM) Is Using Debt Reasonably Well

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We note that Avino Silver & Gold Mines Ltd. (TSE:ASM) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Avino Silver & Gold Mines

How Much Debt Does Avino Silver & Gold Mines Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Avino Silver & Gold Mines had US$4.67m of debt, an increase on US$1.69m, over one year. But on the other hand it also has US$11.7m in cash, leading to a US$7.01m net cash position.

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

We can see from the most recent balance sheet that Avino Silver & Gold Mines had liabilities of US$10.1m falling due within a year, and liabilities of US$7.89m due beyond that. Offsetting these obligations, it had cash of US$11.7m as well as receivables valued at US$6.85m due within 12 months. So it can boast US$512.0k more liquid assets than total liabilities.

Having regard to Avino Silver & Gold Mines' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$66.1m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Avino Silver & Gold Mines boasts net cash, so it's fair to say it does not have a heavy debt load!

It was also good to see that despite losing money on the EBIT line last year, Avino Silver & Gold Mines turned things around in the last 12 months, delivering and EBIT of US$3.9m. There's no doubt that we learn most about debt from the balance sheet. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Avino Silver & Gold Mines has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent year, Avino Silver & Gold Mines recorded free cash flow of 27% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Avino Silver & Gold Mines has net cash of US$7.01m, as well as more liquid assets than liabilities. So we are not troubled with Avino Silver & Gold Mines's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Avino Silver & Gold Mines you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.