Osino Resources (CVE:OSI) Has Debt But No Earnings; Should You Worry?

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.' 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. As with many other companies Osino Resources Corp. (CVE:OSI) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Osino Resources

What Is Osino Resources's Debt?

As you can see below, at the end of December 2022, Osino Resources had CA$5.77m of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds CA$19.6m in cash, so it actually has CA$13.8m net cash.

How Healthy Is Osino Resources' Balance Sheet?

We can see from the most recent balance sheet that Osino Resources had liabilities of CA$8.58m falling due within a year, and liabilities of CA$5.95m due beyond that. Offsetting these obligations, it had cash of CA$19.6m as well as receivables valued at CA$2.27m due within 12 months. So it can boast CA$7.34m more liquid assets than total liabilities.

This short term liquidity is a sign that Osino Resources could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Osino Resources boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Osino Resources'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 Osino Resources finds some valuable resources, before it runs out of money.

So How Risky Is Osino Resources?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Osino Resources had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$16m of cash and made a loss of CA$30m. However, it has net cash of CA$13.8m, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. To that end, you should learn about the 5 warning signs we've spotted with Osino Resources (including 3 which don't sit too well with us) .

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.