Is G Mining Ventures (CVE:GMIN) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that G Mining Ventures Corp. (CVE:GMIN) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for G Mining Ventures

What Is G Mining Ventures's Net Debt?

As you can see below, at the end of March 2023, G Mining Ventures had US$12.6m of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds US$120.9m in cash, so it actually has US$108.3m net cash.

A Look At G Mining Ventures' Liabilities

The latest balance sheet data shows that G Mining Ventures had liabilities of US$25.2m due within a year, and liabilities of US$108.8m falling due after that. On the other hand, it had cash of US$120.9m and US$1.17m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$11.9m.

Of course, G Mining Ventures has a market capitalization of US$399.0m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, G Mining Ventures boasts net cash, so it's fair to say it does not have a heavy debt load! 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 G Mining Ventures 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.

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

So How Risky Is G Mining Ventures?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that G Mining Ventures had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$65m and booked a US$3.8m accounting loss. However, it has net cash of US$108.3m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example G Mining Ventures has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.