Yahoo Finance Health Check: How Prudently Does RTG Mining (TSE:RTG) Use Debt?
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. We note that RTG Mining Inc. (TSE:RTG) does have debt on its balance sheet. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for RTG Mining
How Much Debt Does RTG Mining Carry?
As you can see below, RTG Mining had US$1.50m of debt, at December 2021, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$10.0m in cash offsetting this, leading to net cash of US$8.55m.
A Look At RTG Mining's Liabilities
We can see from the most recent balance sheet that RTG Mining had liabilities of US$3.65m falling due within a year, and liabilities of US$15.3k due beyond that. On the other hand, it had cash of US$10.0m and US$55.0k worth of receivables due within a year. So it can boast US$6.43m more liquid assets than total liabilities.
This short term liquidity is a sign that RTG Mining could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that RTG Mining has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since RTG Mining will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Since RTG Mining has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.
So How Risky Is RTG Mining?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year RTG Mining had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$3.2m and booked a US$6.8m accounting loss. Given it only has net cash of US$8.55m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. To that end, you should learn about the 4 warning signs we've spotted with RTG Mining (including 1 which is a bit unpleasant) .
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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.
