Robex Resources (CVE:RBX) Has A Rock Solid Balance Sheet

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.' 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. We note that Robex Resources Inc. (CVE:RBX) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

See our latest analysis for Robex Resources

How Much Debt Does Robex Resources Carry?

The image below, which you can click on for greater detail, shows that Robex Resources had debt of CA$7.59m at the end of December 2020, a reduction from CA$13.3m over a year. However, its balance sheet shows it holds CA$8.90m in cash, so it actually has CA$1.31m net cash.

A Look At Robex Resources' Liabilities

Zooming in on the latest balance sheet data, we can see that Robex Resources had liabilities of CA$19.3m due within 12 months and liabilities of CA$6.19m due beyond that. Offsetting these obligations, it had cash of CA$8.90m as well as receivables valued at CA$3.75m due within 12 months. So its liabilities total CA$12.9m more than the combination of its cash and short-term receivables.

Since publicly traded Robex Resources shares are worth a total of CA$245.6m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Robex Resources boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, Robex Resources grew its EBIT by 140% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Robex Resources 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Robex Resources has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Robex Resources produced sturdy free cash flow equating to 78% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing up

We could understand if investors are concerned about Robex Resources's liabilities, but we can be reassured by the fact it has has net cash of CA$1.31m. And it impressed us with its EBIT growth of 140% over the last year. So is Robex Resources's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Robex Resources that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. 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.
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