Health Check: How Prudently Does Maritime Resources (CVE:MAE) Use 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Maritime Resources Corp. (CVE:MAE) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Maritime Resources

How Much Debt Does Maritime Resources Carry?

As you can see below, at the end of September 2024, Maritime Resources had CA$5.95m of debt, up from CA$5.24m a year ago. Click the image for more detail. But it also has CA$7.49m in cash to offset that, meaning it has CA$1.54m net cash.

How Healthy Is Maritime Resources' Balance Sheet?

We can see from the most recent balance sheet that Maritime Resources had liabilities of CA$6.96m falling due within a year, and liabilities of CA$7.69m due beyond that. Offsetting this, it had CA$7.49m in cash and CA$313.0k in receivables that were due within 12 months. So it has liabilities totalling CA$6.85m more than its cash and near-term receivables, combined.

Of course, Maritime Resources has a market capitalization of CA$45.7m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Maritime Resources boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Maritime Resources 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 Maritime Resources finds some valuable resources, before it runs out of money.

So How Risky Is Maritime Resources?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Maritime Resources had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CA$5.2m and booked a CA$5.6m accounting loss. But at least it has CA$1.54m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Maritime Resources is showing 5 warning signs in our investment analysis , and 3 of those don't sit too well with us...

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.