Does SilverCrest Metals (TSE:SIL) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, SilverCrest Metals Inc. (TSE:SIL) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 SilverCrest Metals

What Is SilverCrest Metals's Net Debt?

You can click the graphic below for the historical numbers, but it shows that SilverCrest Metals had US$49.6m of debt in December 2022, down from US$87.2m, one year before. However, its balance sheet shows it holds US$50.8m in cash, so it actually has US$1.17m net cash.

How Strong Is SilverCrest Metals' Balance Sheet?

The latest balance sheet data shows that SilverCrest Metals had liabilities of US$36.9m due within a year, and liabilities of US$41.4m falling due after that. On the other hand, it had cash of US$50.8m and US$16.2m worth of receivables due within a year. So its liabilities total US$11.4m more than the combination of its cash and short-term receivables.

Having regard to SilverCrest Metals' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$1.01b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, SilverCrest Metals boasts net cash, so it's fair to say it does not have a heavy debt load!

Although SilverCrest Metals made a loss at the EBIT level, last year, it was also good to see that it generated US$13m in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine SilverCrest Metals'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. SilverCrest Metals may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last year, SilverCrest Metals burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that SilverCrest Metals has US$1.17m in net cash. So we don't have any problem with SilverCrest Metals's use of debt. 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 SilverCrest Metals is showing 1 warning sign in our investment analysis , you should know about...

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.

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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.