We Think Klondike Silver (CVE:KS) Has A Fair Chunk Of Debt

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. As with many other companies Klondike Silver Corp. (CVE:KS) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. 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.

How Much Debt Does Klondike Silver Carry?

The image below, which you can click on for greater detail, shows that at February 2025 Klondike Silver had debt of CA$3.27m, up from CA$2.73m in one year. And it doesn't have much cash, so its net debt is about the same.

A Look At Klondike Silver's Liabilities

The latest balance sheet data shows that Klondike Silver had liabilities of CA$4.64m due within a year, and liabilities of CA$425.6k falling due after that. Offsetting these obligations, it had cash of CA$3.5k as well as receivables valued at CA$68.5k due within 12 months. So its liabilities total CA$4.99m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of CA$6.72m, so it does suggest shareholders should keep an eye on Klondike Silver's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 Klondike Silver will need earnings to service that debt. 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.

Check out our latest analysis for Klondike Silver

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

Caveat Emptor

Importantly, Klondike Silver had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CA$120k. 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. Another cause for caution is that is bled CA$179k in negative free cash flow over the last twelve months. So to be blunt we think it is 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. Case in point: We've spotted 4 warning signs for Klondike Silver you should be aware of.

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.