Does Empress Royalty (CVE:EMPR) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Empress Royalty Corp. (CVE:EMPR) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Empress Royalty's Debt?

As you can see below, Empress Royalty had US$3.97m of debt at June 2025, down from US$6.37m a year prior. However, its balance sheet shows it holds US$4.16m in cash, so it actually has US$192.9k net cash.

A Look At Empress Royalty's Liabilities

Zooming in on the latest balance sheet data, we can see that Empress Royalty had liabilities of US$3.92m due within 12 months and liabilities of US$2.25m due beyond that. On the other hand, it had cash of US$4.16m and US$830.2k worth of receivables due within a year. So it has liabilities totalling US$1.18m more than its cash and near-term receivables, combined.

Having regard to Empress Royalty's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$83.0m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Empress Royalty boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Empress Royalty

We also note that Empress Royalty improved its EBIT from a last year's loss to a positive US$5.5m. 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 Empress Royalty 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Empress Royalty has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last year, Empress Royalty actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

We could understand if investors are concerned about Empress Royalty's liabilities, but we can be reassured by the fact it has has net cash of US$192.9k. And it impressed us with free cash flow of US$7.1m, being 128% of its EBIT. So we don't think Empress Royalty's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Empress Royalty you should know about.

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.