We Think Compañía de Minas BuenaventuraA (NYSE:BVN) Has A Fair Chunk Of Debt

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.' 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. We can see that Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Compañía de Minas BuenaventuraA

What Is Compañía de Minas BuenaventuraA's Debt?

As you can see below, at the end of March 2023, Compañía de Minas BuenaventuraA had US$730.3m of debt, up from US$653.3m a year ago. Click the image for more detail. On the flip side, it has US$173.5m in cash leading to net debt of about US$556.8m.

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$330.7m falling due within a year, and liabilities of US$954.4m due beyond that. Offsetting these obligations, it had cash of US$173.5m as well as receivables valued at US$282.9m due within 12 months. So its liabilities total US$828.6m 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$1.68b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 Compañía de Minas BuenaventuraA'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, Compañía de Minas BuenaventuraA made a loss at the EBIT level, and saw its revenue drop to US$777m, which is a fall of 18%. We would much prefer see growth.

Caveat Emptor

While Compañía de Minas BuenaventuraA's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost US$74m 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. However, it doesn't help that it burned through US$103m of cash over the last year. So suffice it to say we consider the stock very risky. 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. Case in point: We've spotted 2 warning signs for Compañía de Minas BuenaventuraA you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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