Is Foran Mining (TSE:FOM) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Foran Mining Corporation (TSE:FOM) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Foran Mining

What Is Foran Mining's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Foran Mining had CA$42.0m of debt, an increase on CA$34.7m, over one year. But on the other hand it also has CA$210.4m in cash, leading to a CA$168.4m net cash position.

A Look At Foran Mining's Liabilities

According to the last reported balance sheet, Foran Mining had liabilities of CA$40.4m due within 12 months, and liabilities of CA$43.1m due beyond 12 months. On the other hand, it had cash of CA$210.4m and CA$2.73m worth of receivables due within a year. So it can boast CA$129.6m more liquid assets than total liabilities.

This short term liquidity is a sign that Foran Mining could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Foran Mining 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 it is future earnings, more than anything, that will determine Foran Mining's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Given its lack of meaningful operating revenue, investors are probably hoping that Foran Mining finds some valuable resources, before it runs out of money.

So How Risky Is Foran Mining?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Foran Mining lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$145m of cash and made a loss of CA$8.0m. However, it has net cash of CA$168.4m, so it has a bit of time before it will need more capital. 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Foran Mining has 2 warning signs (and 1 which is significant) we think you should know about.

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.

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

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.