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 Orvana Minerals Corp. (TSE:ORV) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
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. If things get really bad, the lenders can take control of the business. 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. 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 Orvana Minerals
How Much Debt Does Orvana Minerals Carry?
You can click the graphic below for the historical numbers, but it shows that Orvana Minerals had US$14.4m of debt in March 2024, down from US$18.7m, one year before. On the flip side, it has US$3.45m in cash leading to net debt of about US$10.9m.
How Strong Is Orvana Minerals' Balance Sheet?
The latest balance sheet data shows that Orvana Minerals had liabilities of US$38.8m due within a year, and liabilities of US$25.7m falling due after that. Offsetting these obligations, it had cash of US$3.45m as well as receivables valued at US$2.31m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$58.8m.
This deficit casts a shadow over the US$23.0m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Orvana Minerals would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Orvana Minerals will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year Orvana Minerals's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.
Caveat Emptor
Importantly, Orvana Minerals had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$143k at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it lost US$2.4m in just last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is quite risky. We'd prefer to pass. 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. Be aware that Orvana Minerals is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...
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.
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About TSX:ORV
Orvana Minerals
A mining and exploration company, engages in the evaluation, development, and mining of gold, copper, silver, and other precious and base metal deposits.
Adequate balance sheet with acceptable track record.
