Minera Frisco. de (BMV:MFRISCOA-1) Has Debt But No Earnings; Should You Worry?

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.' 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. As with many other companies Minera Frisco, S.A.B. de C.V. (BMV:MFRISCOA-1) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Minera Frisco. de

How Much Debt Does Minera Frisco. de Carry?

You can click the graphic below for the historical numbers, but it shows that Minera Frisco. de had Mex$19.2b of debt in September 2023, down from Mex$21.7b, one year before. However, it does have Mex$1.47b in cash offsetting this, leading to net debt of about Mex$17.7b.

How Healthy Is Minera Frisco. de's Balance Sheet?

According to the last reported balance sheet, Minera Frisco. de had liabilities of Mex$9.72b due within 12 months, and liabilities of Mex$14.8b due beyond 12 months. On the other hand, it had cash of Mex$1.47b and Mex$1.34b worth of receivables due within a year. So its liabilities total Mex$21.7b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of Mex$21.5b, we think shareholders really should watch Minera Frisco. de's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. There's no doubt that we learn most about debt from the balance sheet. But it is Minera Frisco. de's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Minera Frisco. de made a loss at the EBIT level, and saw its revenue drop to Mex$9.3b, which is a fall of 30%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Minera Frisco. de's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at Mex$70m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. But on the bright side the company actually produced a statutory profit of Mex$129m and free cash flow of Mex$1.0b. So there is definitely a chance that it can improve things in the next few years. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Minera Frisco. de that you should be aware of.

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.