Yahoo Finance Health Check: How Prudently Does Great Panther Mining (TSE:GPR) Use Debt?
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 can see that Great Panther Mining Limited (TSE:GPR) does use debt in its business. But the real question is whether this debt is making the company risky.
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Great Panther Mining
What Is Great Panther Mining's Net Debt?
The image below, which you can click on for greater detail, shows that at June 2020 Great Panther Mining had debt of US$48.3m, up from US$42.5m in one year. However, it does have US$60.2m in cash offsetting this, leading to net cash of US$11.9m.
How Healthy Is Great Panther Mining's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Great Panther Mining had liabilities of US$110.2m due within 12 months and liabilities of US$69.4m due beyond that. On the other hand, it had cash of US$60.2m and US$15.6m worth of receivables due within a year. So it has liabilities totalling US$103.8m more than its cash and near-term receivables, combined.
While this might seem like a lot, it is not so bad since Great Panther Mining has a market capitalization of US$327.8m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Great Panther Mining also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Great Panther Mining can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Great Panther Mining wasn't profitable at an EBIT level, but managed to grow its revenue by 186%, to US$252m. So its pretty obvious shareholders are hoping for more growth!
So How Risky Is Great Panther Mining?
Although Great Panther Mining had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$18m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The good news for Great Panther Mining shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat 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. Be aware that Great Panther Mining is showing 3 warning signs in our investment analysis , you should know about...
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.
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. 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.
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