Is Osisko Development (CVE:ODV) A Risky Investment?

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. Importantly, Osisko Development Corp. (CVE:ODV) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

How Much Debt Does Osisko Development Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Osisko Development had CA$45.8m of debt, an increase on CA$16.9m, over one year. However, its balance sheet shows it holds CA$106.7m in cash, so it actually has CA$60.8m net cash.

How Healthy Is Osisko Development's Balance Sheet?

We can see from the most recent balance sheet that Osisko Development had liabilities of CA$144.5m falling due within a year, and liabilities of CA$141.8m due beyond that. Offsetting this, it had CA$106.7m in cash and CA$2.57m in receivables that were due within 12 months. So its liabilities total CA$177.1m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of CA$292.3m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. While it does have liabilities worth noting, Osisko Development 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 Osisko Development can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for Osisko Development

In the last year Osisko Development had a loss before interest and tax, and actually shrunk its revenue by 86%, to CA$4.6m. That makes us nervous, to say the least.

So How Risky Is Osisko Development?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Osisko Development had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CA$98m of cash and made a loss of CA$86m. However, it has net cash of CA$60.8m, 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. Be aware that Osisko Development is showing 4 warning signs in our investment analysis , and 2 of those are significant...

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.