Is B2Gold (TSE:BTO) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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, B2Gold Corp. (TSE:BTO) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for B2Gold

How Much Debt Does B2Gold Carry?

The image below, which you can click on for greater detail, shows that at September 2024 B2Gold had debt of US$207.3m, up from US$23.1m in one year. But on the other hand it also has US$431.1m in cash, leading to a US$223.9m net cash position.

A Look At B2Gold's Liabilities

The latest balance sheet data shows that B2Gold had liabilities of US$502.3m due within a year, and liabilities of US$1.10b falling due after that. Offsetting these obligations, it had cash of US$431.1m as well as receivables valued at US$67.8m due within 12 months. So it has liabilities totalling US$1.10b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since B2Gold has a market capitalization of US$3.21b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, B2Gold boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine B2Gold'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.

Over 12 months, B2Gold made a loss at the EBIT level, and saw its revenue drop to US$1.9b, which is a fall of 5.0%. We would much prefer see growth.

So How Risky Is B2Gold?

While B2Gold lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$14m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 1 warning sign for B2Gold 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.

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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.