Is Integra Resources (CVE:ITR) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Integra Resources Corp. (CVE:ITR) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at cash and debt together.

Our analysis indicates that ITR is potentially undervalued!

How Much Debt Does Integra Resources Carry?

As you can see below, at the end of September 2022, Integra Resources had US$8.58m of debt, up from US$651.0k a year ago. Click the image for more detail. However, its balance sheet shows it holds US$20.5m in cash, so it actually has US$11.9m net cash.

How Healthy Is Integra Resources' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Integra Resources had liabilities of US$13.9m due within 12 months and liabilities of US$22.1m due beyond that. On the other hand, it had cash of US$20.5m and US$91.5k worth of receivables due within a year. So its liabilities total US$15.4m more than the combination of its cash and short-term receivables.

Integra Resources has a market capitalization of US$58.5m, so it could very likely raise cash to ameliorate 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. While it does have liabilities worth noting, Integra Resources also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Integra Resources 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.

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

So How Risky Is Integra Resources?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Integra Resources had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$22m of cash and made a loss of US$21m. However, it has net cash of US$11.9m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 Integra Resources has 5 warning signs (and 2 which can't be ignored) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.