Omineca Mining and Metals (CVE:OMM) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Omineca Mining and Metals Ltd. (CVE:OMM) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Omineca Mining and Metals

What Is Omineca Mining and Metals's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Omineca Mining and Metals had debt of CA$10.0m, up from CA$9.61m in one year. However, because it has a cash reserve of CA$755.5k, its net debt is less, at about CA$9.28m.

A Look At Omineca Mining and Metals' Liabilities

According to the last reported balance sheet, Omineca Mining and Metals had liabilities of CA$786.9k due within 12 months, and liabilities of CA$10.1m due beyond 12 months. Offsetting these obligations, it had cash of CA$755.5k as well as receivables valued at CA$128.2k due within 12 months. So its liabilities total CA$10.0m more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of CA$8.99m, we think shareholders really should watch Omineca Mining and Metals's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

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

Over the last twelve months Omineca Mining and Metals produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CA$1.1m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of CA$1.5m over the last twelve months. That means it's on the risky side of things. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 5 warning signs for Omineca Mining and Metals you should be aware of.

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.