Does Wesdome Gold Mines (TSE:WDO) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that Wesdome Gold Mines Ltd. (TSE:WDO) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Wesdome Gold Mines

What Is Wesdome Gold Mines's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Wesdome Gold Mines had CA$38.8m of debt, an increase on CA$27.4m, over one year. However, it does have CA$31.6m in cash offsetting this, leading to net debt of about CA$7.18m.

How Strong Is Wesdome Gold Mines' Balance Sheet?

The latest balance sheet data shows that Wesdome Gold Mines had liabilities of CA$87.6m due within a year, and liabilities of CA$93.4m falling due after that. Offsetting these obligations, it had cash of CA$31.6m as well as receivables valued at CA$9.56m due within 12 months. So its liabilities total CA$139.8m more than the combination of its cash and short-term receivables.

Of course, Wesdome Gold Mines has a market capitalization of CA$1.43b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, Wesdome Gold Mines has virtually no net debt, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Wesdome Gold Mines'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 Wesdome Gold Mines wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to CA$306m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Wesdome Gold Mines had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CA$1.4m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$37m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Wesdome Gold Mines that you should be aware of.

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.