Does BeMetals (CVE:BMET) 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.' 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 BeMetals Corp. (CVE:BMET) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for BeMetals

What Is BeMetals's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2022 BeMetals had debt of CA$6.90m, up from none in one year. But on the other hand it also has CA$7.98m in cash, leading to a CA$1.07m net cash position.

A Look At BeMetals' Liabilities

We can see from the most recent balance sheet that BeMetals had liabilities of CA$325.0k falling due within a year, and liabilities of CA$6.90m due beyond that. Offsetting these obligations, it had cash of CA$7.98m as well as receivables valued at CA$138.4k due within 12 months. So it can boast CA$886.4k more liquid assets than total liabilities.

This short term liquidity is a sign that BeMetals could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that BeMetals 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 it is BeMetals's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

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

So How Risky Is BeMetals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months BeMetals lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CA$7.0m and booked a CA$2.5m accounting loss. Given it only has net cash of CA$1.07m, the company may need to raise more capital if it doesn't reach break-even soon. 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example BeMetals has 4 warning signs (and 3 which shouldn't be ignored) we think 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.