Health Check: How Prudently Does Highland Copper (CVE:HI) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Highland Copper Company Inc. (CVE:HI) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Highland Copper's Net Debt?

As you can see below, at the end of December 2024, Highland Copper had US$7.92m of debt, up from US$200.0k a year ago. Click the image for more detail. However, its balance sheet shows it holds US$14.3m in cash, so it actually has US$6.43m net cash.

How Healthy Is Highland Copper's Balance Sheet?

The latest balance sheet data shows that Highland Copper had liabilities of US$856.6k due within a year, and liabilities of US$9.97m falling due after that. Offsetting these obligations, it had cash of US$14.3m as well as receivables valued at US$69.2k due within 12 months. So it can boast US$3.59m more liquid assets than total liabilities.

This surplus suggests that Highland Copper has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Highland Copper boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Highland Copper 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.

See our latest analysis for Highland Copper

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

So How Risky Is Highland Copper?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Highland Copper lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$8.8m and booked a US$15m accounting loss. But at least it has US$6.43m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 4 warning signs we've spotted with Highland Copper (including 2 which are significant) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.