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

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. As with many other companies Sailfish Royalty Corp. (CVE:FISH) makes use of debt. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Sailfish Royalty

What Is Sailfish Royalty's Net Debt?

As you can see below, Sailfish Royalty had US$3.98m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$2.54m in cash offsetting this, leading to net debt of about US$1.44m.

How Strong Is Sailfish Royalty's Balance Sheet?

The latest balance sheet data shows that Sailfish Royalty had liabilities of US$1.09m due within a year, and liabilities of US$3.94m falling due after that. Offsetting these obligations, it had cash of US$2.54m as well as receivables valued at US$3.97m due within 12 months. So it can boast US$1.48m more liquid assets than total liabilities.

Having regard to Sailfish Royalty's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$76.5m company is short on cash, but still worth keeping an eye on the balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Sailfish Royalty can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Sailfish Royalty saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Importantly, Sailfish Royalty had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$802k. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. Still, we'd be more encouraged to study the business in depth if it already had some free cash flow. So it seems too risky for our taste. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with Sailfish Royalty (including 1 which can't be ignored) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.