Yahoo Finance IAMGOLD (TSE:IMG) Has Debt But No Earnings; Should You Worry?
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital. 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 IAMGOLD Corporation (TSE:IMG) does have debt on its balance sheet. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for IAMGOLD
What Is IAMGOLD's Net Debt?
As you can see below, at the end of June 2019, IAMGOLD had US$413.5m of debt, up from US$393.7m a year ago. Click the image for more detail. But it also has US$661.0m in cash to offset that, meaning it has US$247.5m net cash.
A Look At IAMGOLD's Liabilities
The latest balance sheet data shows that IAMGOLD had liabilities of US$243.8m due within a year, and liabilities of US$955.4m falling due after that. Offsetting this, it had US$661.0m in cash and US$66.4m in receivables that were due within 12 months. So it has liabilities totalling US$471.8m more than its cash and near-term receivables, combined.
IAMGOLD has a market capitalization of US$1.71b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, IAMGOLD 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 IAMGOLD 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.
Over 12 months, IAMGOLD made a loss at the EBIT level, and saw its revenue drop to US$1.0b, which is a fall of 12%. We would much prefer see growth.
So How Risky Is IAMGOLD?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months IAMGOLD lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$243m of cash and made a loss of US$100m. With only US$247.5m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. For riskier companies like IAMGOLD I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
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.
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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.
