Is Osisko Development (CVE:ODV) Using Debt In A Risky Way?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 the real question is whether this debt is making the company risky.

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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Osisko Development

How Much Debt Does Osisko Development Carry?

As you can see below, Osisko Development had CA$16.9m of debt, at December 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have CA$43.5m in cash offsetting this, leading to net cash of CA$26.5m.

How Healthy Is Osisko Development's Balance Sheet?

The latest balance sheet data shows that Osisko Development had liabilities of CA$45.8m due within a year, and liabilities of CA$132.9m falling due after that. Offsetting this, it had CA$43.5m in cash and CA$3.95m in receivables that were due within 12 months. So it has liabilities totalling CA$131.3m more than its cash and near-term receivables, combined.

Osisko Development has a market capitalization of CA$270.9m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Osisko Development boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Osisko Development 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.

In the last year Osisko Development had a loss before interest and tax, and actually shrunk its revenue by 51%, to CA$32m. To be frank that doesn't bode well.

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 we do note that Osisko Development had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$116m of cash and made a loss of CA$182m. Given it only has net cash of CA$26.5m, the company may need to raise more capital if it doesn't reach break-even soon. 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 2 warning signs in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.