Would World Copper (CVE:WCU) Be Better Off With Less Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that World Copper Ltd. (CVE:WCU) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. 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. 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 think about a company's use of debt, we first look at cash and debt together.

What Is World Copper's Net Debt?

You can click the graphic below for the historical numbers, but it shows that World Copper had CA$2.18m of debt in March 2025, down from CA$4.83m, one year before. Net debt is about the same, since the it doesn't have much cash.

How Strong Is World Copper's Balance Sheet?

The latest balance sheet data shows that World Copper had liabilities of CA$4.67m due within a year, and liabilities of CA$144.3k falling due after that. Offsetting this, it had CA$39.8k in cash and CA$61.3k in receivables that were due within 12 months. So it has liabilities totalling CA$4.71m more than its cash and near-term receivables, combined.

This deficit isn't so bad because World Copper is worth CA$12.5m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since World Copper 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.

View our latest analysis for World Copper

Given its lack of meaningful operating revenue, investors are probably hoping that World Copper finds some valuable resources, before it runs out of money.

Caveat Emptor

Importantly, World Copper had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$27m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CA$4.3m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example World Copper has 6 warning signs (and 5 which make us uncomfortable) 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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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.