Does Compañía de Minas BuenaventuraA (NYSE:BVN) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) does use debt in its business. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Compañía de Minas BuenaventuraA

What Is Compañía de Minas BuenaventuraA's Net Debt?

As you can see below, Compañía de Minas BuenaventuraA had US$628.0m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$202.4m in cash leading to net debt of about US$425.6m.

How Healthy Is Compañía de Minas BuenaventuraA's Balance Sheet?

We can see from the most recent balance sheet that Compañía de Minas BuenaventuraA had liabilities of US$347.1m falling due within a year, and liabilities of US$934.5m due beyond that. Offsetting this, it had US$202.4m in cash and US$203.0m in receivables that were due within 12 months. So its liabilities total US$876.2m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Compañía de Minas BuenaventuraA is worth US$2.06b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Compañía de Minas BuenaventuraA 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.

Over 12 months, Compañía de Minas BuenaventuraA made a loss at the EBIT level, and saw its revenue drop to US$801m, which is a fall of 6.6%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Compañía de Minas BuenaventuraA produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$32m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$78m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Compañía de Minas BuenaventuraA has 1 warning sign we think 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.