Yahoo Finance Goldstone Resources (LON:GRL) Has Debt But No Earnings; Should You Worry?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Goldstone Resources Limited (LON:GRL) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.
Check out our latest analysis for Goldstone Resources
What Is Goldstone Resources's Debt?
The image below, which you can click on for greater detail, shows that at December 2018 Goldstone Resources had debt of US$324.0k, up from none in one year. However, it does have US$337.5k in cash offsetting this, leading to net cash of US$13.5k.
A Look At Goldstone Resources's Liabilities
We can see from the most recent balance sheet that Goldstone Resources had liabilities of US$456.9k falling due within a year, and liabilities of US$324.0k due beyond that. Offsetting this, it had US$337.5k in cash and US$3.2k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$440.2k.
Of course, Goldstone Resources has a market capitalization of US$5.08m, 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, Goldstone Resources boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Goldstone Resources 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 Goldstone Resources has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.
So How Risky Is Goldstone Resources?
By their very nature companies that are losing money are more risky than those with a long history of profitability. Anf the fact is that over the last twelve months Goldstone Resources lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$1.6m of cash and made a loss of US$1.0m. Given it only has net cash of US$337k, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Goldstone Resources's profit, revenue, and operating cashflow have changed over the last few years.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
