Hycroft Mining Holding (NASDAQ:HYMC) Is Carrying A Fair Bit Of Debt

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. We can see that Hycroft Mining Holding Corporation (NASDAQ:HYMC) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

View our latest analysis for Hycroft Mining Holding

What Is Hycroft Mining Holding's Net Debt?

The chart below, which you can click on for greater detail, shows that Hycroft Mining Holding had US$137.4m in debt in March 2023; about the same as the year before. However, it does have US$132.2m in cash offsetting this, leading to net debt of about US$5.22m.

How Healthy Is Hycroft Mining Holding's Balance Sheet?

The latest balance sheet data shows that Hycroft Mining Holding had liabilities of US$9.19m due within a year, and liabilities of US$175.5m falling due after that. Offsetting these obligations, it had cash of US$132.2m as well as receivables valued at US$2.04m due within 12 months. So it has liabilities totalling US$50.5m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of US$82.7m, so it does suggest shareholders should keep an eye on Hycroft Mining Holding's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 Hycroft Mining Holding 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.

Over 12 months, Hycroft Mining Holding made a loss at the EBIT level, and saw its revenue drop to US$24m, which is a fall of 76%. To be frank that doesn't bode well.

Caveat Emptor

While Hycroft Mining Holding's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping US$53m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$38m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Hycroft Mining Holding that you should be aware of.

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.