Does Greatland Gold (LON:GGP) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Greatland Gold plc (LON:GGP) does carry debt. But the real question is whether this debt is making the company risky.

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. 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, plenty of companies use debt to fund growth, without any negative consequences. 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 Greatland Gold

How Much Debt Does Greatland Gold Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 Greatland Gold had UK£43.5m of debt, an increase on UK£20.1m, over one year. But on the other hand it also has UK£59.8m in cash, leading to a UK£16.3m net cash position.

A Look At Greatland Gold's Liabilities

The latest balance sheet data shows that Greatland Gold had liabilities of UK£4.60m due within a year, and liabilities of UK£45.7m falling due after that. Offsetting this, it had UK£59.8m in cash and UK£376.0k in receivables that were due within 12 months. So it actually has UK£9.94m more liquid assets than total liabilities.

This short term liquidity is a sign that Greatland Gold could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Greatland Gold boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Greatland Gold can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

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

So How Risky Is Greatland 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 Greatland Gold had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of UK£25m and booked a UK£21m accounting loss. With only UK£16.3m on the balance sheet, it would appear that its going to need to raise capital again 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. 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 3 warning signs we've spotted with Greatland Gold (including 1 which makes us a bit uncomfortable) .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.