Is Triple Flag Precious Metals (TSE:TFPM) Using Debt Sensibly?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Triple Flag Precious Metals Corp. (TSE:TFPM) makes use of debt. But the real question is whether this debt is making the company risky.

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Triple Flag Precious Metals

What Is Triple Flag Precious Metals's Debt?

You can click the graphic below for the historical numbers, but it shows that Triple Flag Precious Metals had US$20.0m of debt in June 2024, down from US$65.0m, one year before. However, it does have US$24.0m in cash offsetting this, leading to net cash of US$4.03m.

How Healthy Is Triple Flag Precious Metals' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Triple Flag Precious Metals had liabilities of US$10.1m due within 12 months and liabilities of US$29.9m due beyond that. Offsetting these obligations, it had cash of US$24.0m as well as receivables valued at US$19.2m due within 12 months. So it can boast US$3.23m more liquid assets than total liabilities.

This state of affairs indicates that Triple Flag Precious Metals' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$3.43b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Triple Flag Precious Metals has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Triple Flag Precious Metals can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Triple Flag Precious Metals reported revenue of US$222m, which is a gain of 23%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Triple Flag Precious Metals?

Although Triple Flag Precious Metals had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$132m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We think its revenue growth of 23% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. 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. For instance, we've identified 1 warning sign for Triple Flag Precious Metals that you should be aware of.

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.