Is SilverCrest Metals (TSE:SIL) Using Debt Sensibly?

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. Importantly, SilverCrest Metals Inc. (TSE:SIL) does carry debt. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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

How Much Debt Does SilverCrest Metals Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 SilverCrest Metals had US$87.4m of debt, an increase on US$29.0m, over one year. But it also has US$152.0m in cash to offset that, meaning it has US$64.6m net cash.

How Strong Is SilverCrest Metals' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SilverCrest Metals had liabilities of US$10.9m due within 12 months and liabilities of US$90.3m due beyond that. Offsetting this, it had US$152.0m in cash and US$16.0m in receivables that were due within 12 months. So it actually has US$66.9m more liquid assets than total liabilities.

This surplus suggests that SilverCrest Metals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, SilverCrest Metals boasts net cash, so it's fair to say it does not have a heavy debt load! 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Since SilverCrest Metals has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

So How Risky Is SilverCrest Metals?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year SilverCrest Metals had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$137m of cash and made a loss of US$19m. However, it has net cash of US$64.6m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 4 warning signs with SilverCrest Metals (at least 2 which make us uncomfortable) , 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.