Despite Lacking Profits Newlox Gold Ventures (FRA:NGO) Seems To Be On Top Of Its Debt

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Newlox Gold Ventures Corp. (FRA:NGO) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. 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 Newlox Gold Ventures

What Is Newlox Gold Ventures's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Newlox Gold Ventures had CA$2.25m of debt in December 2021, down from CA$4.03m, one year before. However, its balance sheet shows it holds CA$4.47m in cash, so it actually has CA$2.22m net cash.

How Healthy Is Newlox Gold Ventures' Balance Sheet?

The latest balance sheet data shows that Newlox Gold Ventures had liabilities of CA$348.7k due within a year, and liabilities of CA$2.43m falling due after that. Offsetting this, it had CA$4.47m in cash and CA$77.7k in receivables that were due within 12 months. So it actually has CA$1.77m more liquid assets than total liabilities.

This short term liquidity is a sign that Newlox Gold Ventures could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Newlox Gold Ventures boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Newlox Gold Ventures 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.

Over 12 months, Newlox Gold Ventures reported revenue of CA$1.5m, which is a gain of 372%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Newlox Gold Ventures?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Newlox Gold Ventures had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$1.7m of cash and made a loss of CA$3.0m. With only CA$2.22m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, Newlox Gold Ventures's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. To that end, you should learn about the 5 warning signs we've spotted with Newlox Gold Ventures (including 1 which is a bit unpleasant) .

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.