Galantas Gold (CVE:GAL) Has Debt But No Earnings; Should You Worry?

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.' 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 Galantas Gold Corporation (CVE:GAL) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

What Is Galantas Gold's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Galantas Gold had CA$21.6m of debt, an increase on CA$17.3m, over one year. However, it does have CA$729.4k in cash offsetting this, leading to net debt of about CA$20.9m.

A Look At Galantas Gold's Liabilities

According to the last reported balance sheet, Galantas Gold had liabilities of CA$18.9m due within 12 months, and liabilities of CA$8.18m due beyond 12 months. Offsetting these obligations, it had cash of CA$729.4k as well as receivables valued at CA$122.1k due within 12 months. So its liabilities total CA$26.2m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CA$8.03m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Galantas Gold would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Galantas Gold's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Galantas Gold

Given its lack of meaningful operating revenue, investors are probably hoping that Galantas Gold finds some valuable resources, before it runs out of money.

Caveat Emptor

Importantly, Galantas Gold had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping CA$2.5m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized CA$2.4m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. 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. To that end, you should be aware of the 5 warning signs we've spotted with Galantas Gold .

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.