Does JZR Gold (CVE:JZR) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, JZR Gold Inc. (CVE:JZR) does carry debt. But the more important question is: how much risk is that debt creating?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for JZR Gold

What Is JZR Gold's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2023 JZR Gold had debt of CA$1.99m, up from CA$1.76m in one year. However, it does have CA$122.5k in cash offsetting this, leading to net debt of about CA$1.87m.

A Look At JZR Gold's Liabilities

Zooming in on the latest balance sheet data, we can see that JZR Gold had liabilities of CA$3.28m due within 12 months and no liabilities due beyond that. Offsetting these obligations, it had cash of CA$122.5k as well as receivables valued at CA$93.8k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$3.07m.

Since publicly traded JZR Gold shares are worth a total of CA$18.8m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since JZR Gold will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

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

Caveat Emptor

Importantly, JZR Gold had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping CA$2.0m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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$965k of cash over the last year. So suffice it to say we consider the stock very 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. To that end, you should learn about the 5 warning signs we've spotted with JZR Gold (including 3 which are a bit unpleasant) .

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.