Is Cerrado Gold (CVE:CERT) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Cerrado Gold Inc. (CVE:CERT) does use debt in its business. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Cerrado Gold's Debt?

The image below, which you can click on for greater detail, shows that Cerrado Gold had debt of US$44.0m at the end of June 2025, a reduction from US$56.0m over a year. However, it does have US$5.71m in cash offsetting this, leading to net debt of about US$38.3m.

A Look At Cerrado Gold's Liabilities

Zooming in on the latest balance sheet data, we can see that Cerrado Gold had liabilities of US$131.2m due within 12 months and liabilities of US$84.7m due beyond that. Offsetting these obligations, it had cash of US$5.71m as well as receivables valued at US$90.0m due within 12 months. So its liabilities total US$120.2m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of US$135.9m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Cerrado Gold 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.

Check out our latest analysis for Cerrado Gold

Over 12 months, Cerrado Gold reported revenue of US$119m, which is a gain of 12%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Cerrado Gold produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$1.9m. 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. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of US$3.4m and the profit of US$1.6m. So if we focus on those metrics there seems to be a chance the company will manage its debt without much trouble. 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. Case in point: We've spotted 4 warning signs for Cerrado Gold you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.