Does Omineca Mining and Metals (CVE:OMM) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Omineca Mining and Metals Ltd. (CVE:OMM) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Our free stock report includes 6 warning signs investors should be aware of before investing in Omineca Mining and Metals. Read for free now.

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Omineca Mining and Metals's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Omineca Mining and Metals had debt of CA$10.8m, up from CA$9.99m in one year. On the flip side, it has CA$2.29m in cash leading to net debt of about CA$8.51m.

How Strong Is Omineca Mining and Metals' Balance Sheet?

According to the last reported balance sheet, Omineca Mining and Metals had liabilities of CA$2.89m due within 12 months, and liabilities of CA$10.9m due beyond 12 months. On the other hand, it had cash of CA$2.29m and CA$184.7k worth of receivables due within a year. So it has liabilities totalling CA$11.3m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of CA$14.4m, so it does suggest shareholders should keep an eye on Omineca Mining and Metals' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Omineca Mining and Metals will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

See our latest analysis for Omineca Mining and Metals

Given its lack of meaningful operating revenue, investors are probably hoping that Omineca Mining and Metals finds some valuable resources, before it runs out of money.

Caveat Emptor

Importantly, Omineca Mining and Metals had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping CA$1.6m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$2.6m in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Omineca Mining and Metals has 6 warning signs (and 5 which are a bit unpleasant) we think you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.