Is Sabina Gold & Silver (TSE:SBB) A Risky Investment?

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.' 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. We can see that Sabina Gold & Silver Corp. (TSE:SBB) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Sabina Gold & Silver

What Is Sabina Gold & Silver's Debt?

As you can see below, at the end of March 2022, Sabina Gold & Silver had CA$37.5m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has CA$221.4m in cash, leading to a CA$183.9m net cash position.

A Look At Sabina Gold & Silver's Liabilities

The latest balance sheet data shows that Sabina Gold & Silver had liabilities of CA$53.8m due within a year, and liabilities of CA$51.9m falling due after that. On the other hand, it had cash of CA$221.4m and CA$1.65m worth of receivables due within a year. So it actually has CA$117.3m more liquid assets than total liabilities.

This excess liquidity suggests that Sabina Gold & Silver is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Sabina Gold & Silver 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 ultimately the future profitability of the business will decide if Sabina Gold & Silver 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.

Since Sabina Gold & Silver has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

So How Risky Is Sabina Gold & Silver?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Sabina Gold & Silver had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CA$99m and booked a CA$12m accounting loss. Given it only has net cash of CA$183.9m, the company may need to raise more capital if it doesn't reach break-even soon. 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 5 warning signs for Sabina Gold & Silver you should be aware of, and 3 of them are concerning.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.