Is Americas Gold and Silver (TSE:USA) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Americas Gold and Silver Corporation (TSE:USA) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Americas Gold and Silver

What Is Americas Gold and Silver's Debt?

You can click the graphic below for the historical numbers, but it shows that Americas Gold and Silver had US$11.9m of debt in September 2022, down from US$17.4m, one year before. However, it does have US$2.41m in cash offsetting this, leading to net debt of about US$9.46m.

A Look At Americas Gold and Silver's Liabilities

According to the last reported balance sheet, Americas Gold and Silver had liabilities of US$36.0m due within 12 months, and liabilities of US$45.0m due beyond 12 months. Offsetting these obligations, it had cash of US$2.41m as well as receivables valued at US$4.43m due within 12 months. So its liabilities total US$74.2m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Americas Gold and Silver is worth US$126.6m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Americas Gold and Silver'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.

In the last year Americas Gold and Silver wasn't profitable at an EBIT level, but managed to grow its revenue by 99%, to US$79m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Americas Gold and Silver still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$30m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$29m of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Americas Gold and Silver is showing 2 warning signs in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.