Yahoo Finance These 4 Measures Indicate That SSR Mining (TSE:SSRM) Is Using Debt Safely
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies SSR Mining Inc. (TSE:SSRM) makes use of debt. But is this debt a concern to shareholders?
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 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. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for SSR Mining
What Is SSR Mining's Net Debt?
As you can see below, SSR Mining had US$343.1m of debt at September 2021, down from US$405.2m a year prior. However, it does have US$881.6m in cash offsetting this, leading to net cash of US$538.4m.
How Strong Is SSR Mining's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that SSR Mining had liabilities of US$232.9m due within 12 months and liabilities of US$1.07b due beyond that. Offsetting these obligations, it had cash of US$881.6m as well as receivables valued at US$95.3m due within 12 months. So it has liabilities totalling US$322.3m more than its cash and near-term receivables, combined.
Of course, SSR Mining has a market capitalization of US$3.67b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, SSR Mining also has more cash than debt, so we're pretty confident it can manage its debt safely.
Even more impressive was the fact that SSR Mining grew its EBIT by 210% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if SSR Mining 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.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. SSR Mining may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, SSR Mining recorded free cash flow worth 61% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing up
While it is always sensible to look at a company's total liabilities, it is very reassuring that SSR Mining has US$538.4m in net cash. And we liked the look of last year's 210% year-on-year EBIT growth. So we don't think SSR Mining's use of debt is risky. Another factor that would give us confidence in SSR Mining would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.
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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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.
