Is Osisko Gold Royalties (TSE:OR) Weighed On By Its Debt Load?

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 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. As with many other companies Osisko Gold Royalties Ltd (TSE:OR) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Osisko Gold Royalties

What Is Osisko Gold Royalties's Net Debt?

As you can see below, Osisko Gold Royalties had CA$414.4m of debt, at March 2022, which is about the same as the year before. You can click the chart for greater detail. But it also has CA$452.4m in cash to offset that, meaning it has CA$38.0m net cash.

How Healthy Is Osisko Gold Royalties' Balance Sheet?

The latest balance sheet data shows that Osisko Gold Royalties had liabilities of CA$567.0m due within a year, and liabilities of CA$239.3m falling due after that. Offsetting these obligations, it had cash of CA$452.4m as well as receivables valued at CA$16.3m due within 12 months. So its liabilities total CA$337.6m more than the combination of its cash and short-term receivables.

Given Osisko Gold Royalties has a market capitalization of CA$2.55b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Osisko Gold Royalties boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Osisko Gold Royalties 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 Osisko Gold Royalties had a loss before interest and tax, and actually shrunk its revenue by 4.6%, to CA$217m. We would much prefer see growth.

So How Risky Is Osisko Gold Royalties?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Osisko Gold Royalties had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$154m of cash and made a loss of CA$34m. With only CA$38.0m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. We've identified 2 warning signs with Osisko Gold Royalties , and understanding them should be part of your investment process.

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.