Is Cora Gold (LON:CORA) Using Debt In A Risky Way?

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. Importantly, Cora Gold Limited (LON:CORA) does carry debt. But should shareholders be worried about its use of debt?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Cora Gold

What Is Cora Gold's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Cora Gold had US$16.4m of debt, an increase on none, over one year. But on the other hand it also has US$18.5m in cash, leading to a US$2.13m net cash position.

A Look At Cora Gold's Liabilities

Zooming in on the latest balance sheet data, we can see that Cora Gold had liabilities of US$16.6m due within 12 months and no liabilities due beyond that. On the other hand, it had cash of US$18.5m and US$107.0k worth of receivables due within a year. So it can boast US$1.98m more liquid assets than total liabilities.

This surplus suggests that Cora Gold is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Cora Gold has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Cora Gold can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Since Cora Gold has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

So How Risky Is Cora Gold?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Cora Gold had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$2.7m of cash and made a loss of US$4.2m. Given it only has net cash of US$2.13m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Be aware that Cora Gold is showing 4 warning signs in our investment analysis , and 1 of those is concerning...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.