Serabi Gold (LON:SRB) Has A Rock Solid Balance Sheet

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 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. As with many other companies Serabi Gold plc (LON:SRB) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Serabi Gold's Debt?

As you can see below, Serabi Gold had US$5.13m of debt at June 2025, down from US$5.37m a year prior. But it also has US$30.4m in cash to offset that, meaning it has US$25.3m net cash.

How Strong Is Serabi Gold's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Serabi Gold had liabilities of US$20.4m due within 12 months and liabilities of US$5.33m due beyond that. Offsetting this, it had US$30.4m in cash and US$3.21m in receivables that were due within 12 months. So it can boast US$7.88m more liquid assets than total liabilities.

This short term liquidity is a sign that Serabi Gold could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Serabi Gold boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Serabi Gold

Better yet, Serabi Gold grew its EBIT by 335% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Serabi 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Serabi Gold may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Serabi Gold produced sturdy free cash flow equating to 62% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Serabi Gold has US$25.3m in net cash and a decent-looking balance sheet. And we liked the look of last year's 335% year-on-year EBIT growth. So is Serabi Gold's debt a risk? It doesn't seem so to us. 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, we've discovered 1 warning sign for Serabi Gold that you should be aware of before investing here.

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.