Does Rogue Resources (CVE:RRS) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Rogue Resources Inc. (CVE:RRS) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 Rogue Resources

What Is Rogue Resources's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of January 2021 Rogue Resources had CA$2.26m of debt, an increase on CA$800.0k, over one year. However, it also had CA$283.7k in cash, and so its net debt is CA$1.97m.

How Strong Is Rogue Resources' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Rogue Resources had liabilities of CA$1.20m due within 12 months and liabilities of CA$3.14m due beyond that. On the other hand, it had cash of CA$283.7k and CA$156.8k worth of receivables due within a year. So it has liabilities totalling CA$3.90m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of CA$3.69m, we think shareholders really should watch Rogue Resources's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Rogue Resources's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

While it hasn't made a profit, at least Rogue Resources booked its first revenue as a publicly listed company, in the last twelve months.

Caveat Emptor

Importantly, Rogue Resources had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CA$165k. Considering that alongside the liabilities mentioned above make us nervous 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$1.2m over the last twelve months. That means it's on the risky side of things. 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 Rogue Resources has 5 warning signs (and 3 which shouldn't be ignored) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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