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. Importantly, Osisko Metals Incorporated (CVE:OM) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.
See our latest analysis for Osisko Metals
What Is Osisko Metals's Debt?
You can click the graphic below for the historical numbers, but it shows that as of December 2022 Osisko Metals had CA$6.06m of debt, an increase on none, over one year. However, because it has a cash reserve of CA$3.08m, its net debt is less, at about CA$2.98m.
How Strong Is Osisko Metals' Balance Sheet?
The latest balance sheet data shows that Osisko Metals had liabilities of CA$10.6m due within a year, and liabilities of CA$8.75m falling due after that. Offsetting these obligations, it had cash of CA$3.08m as well as receivables valued at CA$1.51m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$14.8m.
This deficit isn't so bad because Osisko Metals is worth CA$71.1m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 Osisko Metals'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.
Given its lack of meaningful operating revenue, investors are probably hoping that Osisko Metals finds some valuable resources, before it runs out of money.
Caveat Emptor
Importantly, Osisko Metals had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$14m 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CA$21m of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 5 warning signs we've spotted with Osisko Metals (including 3 which are a bit concerning) .
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.
New: AI Stock Screener & Alerts
Our new AI Stock Screener scans the market every day to uncover opportunities.
• Dividend Powerhouses (3%+ Yield)
• Undervalued Small Caps with Insider Buying
• High growth Tech and AI Companies
Or build your own from over 50 metrics.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About TSXV:OM
Osisko Metals
Engages in the exploration and evaluation of based metal properties in Canada.
Slight with mediocre balance sheet.