Is IAMGOLD (TSE:IMG) Weighed On By Its Debt Load?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that IAMGOLD Corporation (TSE:IMG) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for IAMGOLD

What Is IAMGOLD's Net Debt?

You can click the graphic below for the historical numbers, but it shows that IAMGOLD had US$830.8m of debt in December 2023, down from US$918.7m, one year before. However, because it has a cash reserve of US$367.1m, its net debt is less, at about US$463.7m.

How Healthy Is IAMGOLD's Balance Sheet?

According to the last reported balance sheet, IAMGOLD had liabilities of US$630.8m due within 12 months, and liabilities of US$1.64b due beyond 12 months. Offsetting these obligations, it had cash of US$367.1m as well as receivables valued at US$66.6m due within 12 months. So its liabilities total US$1.84b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of US$1.80b, we think shareholders really should watch IAMGOLD's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine IAMGOLD'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, IAMGOLD reported revenue of US$987m, which is a gain of 3.0%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, IAMGOLD had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$1.3m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through US$816m in negative free cash flow over the last year. That means it's on the risky side of things. 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. Be aware that IAMGOLD is showing 2 warning signs in our investment analysis , and 1 of those is concerning...

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.