Here's Why Metalla Royalty & Streaming (CVE:MTA) Can Afford Some 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.' 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 note that Metalla Royalty & Streaming Ltd. (CVE:MTA) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Metalla Royalty & Streaming

What Is Metalla Royalty & Streaming's Debt?

As you can see below, at the end of December 2021, Metalla Royalty & Streaming had US$10.5m of debt, up from US$3.06m a year ago. Click the image for more detail. However, it also had US$2.34m in cash, and so its net debt is US$8.17m.

A Look At Metalla Royalty & Streaming's Liabilities

We can see from the most recent balance sheet that Metalla Royalty & Streaming had liabilities of US$1.09m falling due within a year, and liabilities of US$11.0m due beyond that. Offsetting this, it had US$2.34m in cash and US$1.30m in receivables that were due within 12 months. So its liabilities total US$8.43m more than the combination of its cash and short-term receivables.

Since publicly traded Metalla Royalty & Streaming shares are worth a total of US$220.0m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Metalla Royalty & Streaming's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Metalla Royalty & Streaming reported revenue of US$3.0m, which is a gain of 32%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Metalla Royalty & Streaming's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost US$8.9m at the EBIT level. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$36m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Metalla Royalty & Streaming 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.