Sailfish Royalty (CVE:FISH) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Sailfish Royalty Corp. (CVE:FISH) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Sailfish Royalty

How Much Debt Does Sailfish Royalty Carry?

You can click the graphic below for the historical numbers, but it shows that Sailfish Royalty had US$2.97m of debt in September 2020, down from US$10.8m, one year before. However, it does have US$2.58m in cash offsetting this, leading to net debt of about US$388.3k.

A Look At Sailfish Royalty's Liabilities

Zooming in on the latest balance sheet data, we can see that Sailfish Royalty had liabilities of US$205.5k due within 12 months and liabilities of US$3.02m due beyond that. Offsetting these obligations, it had cash of US$2.58m as well as receivables valued at US$97.4k due within 12 months. So it has liabilities totalling US$546.8k more than its cash and near-term receivables, combined.

Having regard to Sailfish 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$63.5m company is struggling for cash, we still think it's worth monitoring its balance sheet. Carrying virtually no net debt, Sailfish Royalty has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Sailfish Royalty's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

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

Caveat Emptor

While Sailfish Royalty's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost US$2.7m at the EBIT level. 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. However, it doesn't help that it burned through US$1.4m of cash over the last year. So suffice it to say we do consider the stock to be 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. Case in point: We've spotted 4 warning signs for Sailfish Royalty you should be aware of, and 2 of them shouldn't be ignored.

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. 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.
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