Is Hycroft Mining Holding (NASDAQ:HYMC) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Hycroft Mining Holding Corporation (NASDAQ:HYMC) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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. 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 Debt?

You can click the graphic below for the historical numbers, but it shows that Hycroft Mining Holding had US$139.7m of debt in March 2022, down from US$153.3m, one year before. However, it does have US$173.0m in cash offsetting this, leading to net cash of US$33.3m.

A Look At Hycroft Mining Holding's Liabilities

According to the last reported balance sheet, Hycroft Mining Holding had liabilities of US$15.3m due within 12 months, and liabilities of US$178.8m due beyond 12 months. Offsetting these obligations, it had cash of US$173.0m as well as receivables valued at US$1.53m due within 12 months. So its liabilities total US$19.5m more than the combination of its cash and short-term receivables.

Of course, Hycroft Mining Holding has a market capitalization of US$287.7m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Hycroft Mining Holding boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Hycroft Mining Holding's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Hycroft Mining Holding reported revenue of US$101m, which is a gain of 84%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Hycroft Mining Holding?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Hycroft Mining Holding had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$31m of cash and made a loss of US$101m. Given it only has net cash of US$33.3m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Hycroft Mining Holding may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. Case in point: We've spotted 3 warning signs for Hycroft Mining Holding you should be aware of, and 1 of them is concerning.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.