We Think Getty Copper (CVE:GTC) Has A Fair Chunk Of Debt

By
Simply Wall St
Published
January 18, 2022
TSXV:GTC
Source: Shutterstock

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Getty Copper Inc. (CVE:GTC) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Getty Copper

What Is Getty Copper's Net Debt?

As you can see below, at the end of September 2021, Getty Copper had CA$2.04m of debt, up from CA$1.82m a year ago. Click the image for more detail. However, it does have CA$61.7k in cash offsetting this, leading to net debt of about CA$1.98m.

debt-equity-history-analysis
TSXV:GTC Debt to Equity History January 18th 2022

How Strong Is Getty Copper's Balance Sheet?

We can see from the most recent balance sheet that Getty Copper had liabilities of CA$1.55m falling due within a year, and liabilities of CA$1.25m due beyond that. On the other hand, it had cash of CA$61.7k and CA$620 worth of receivables due within a year. So it has liabilities totalling CA$2.74m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Getty Copper is worth CA$8.53m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Getty Copper'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 Getty Copper has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

Caveat Emptor

Over the last twelve months Getty Copper produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CA$177k at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CA$71k of cash over the last year. So suffice it to say we do consider the stock to be risky. 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, we've discovered 4 warning signs for Getty Copper (3 are potentially serious!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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