Does Eskay Mining (CVE:ESK) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Eskay Mining Corp. (CVE:ESK) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Eskay Mining

How Much Debt Does Eskay Mining Carry?

You can click the graphic below for the historical numbers, but it shows that as of February 2023 Eskay Mining had CA$2.78m of debt, an increase on CA$2.47m, over one year. However, it does have CA$3.02m in cash offsetting this, leading to net cash of CA$241.2k.

A Look At Eskay Mining's Liabilities

Zooming in on the latest balance sheet data, we can see that Eskay Mining had liabilities of CA$3.11m due within 12 months and liabilities of CA$71.4k due beyond that. On the other hand, it had cash of CA$3.02m and CA$200.7k worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Eskay Mining's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CA$170.8m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Eskay Mining has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Eskay Mining'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.

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

So How Risky Is Eskay Mining?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Eskay Mining had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$15m of cash and made a loss of CA$20m. While this does make the company a bit risky, it's important to remember it has net cash of CA$241.2k. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. 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. For instance, we've identified 4 warning signs for Eskay Mining (3 make us uncomfortable) 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.