Howard Marks put it well when he said that instead of worrying about stock price volatility, “the possibility of a deadweight loss is a risk I worry about … and every practical investor I know worries about.” When we think about how risky a company is, we always like to look at how it uses borrowed funds, as debt overload can lead to ruin. Note that KEFI Gold and Copper Plc (LON: KEFI) does have debt on the balance sheet. But should shareholders be concerned about using debt?
When does the debt problem arise?
Debt helps a business until it has problems paying off new capital or free cash flow. Ultimately, if the company fails to meet its legal obligations to repay the debt, shareholders may be left with nothing. However, the more common (but still costly) case is that a company is forced to issue shares at undervalued prices, constantly diluting shareholders, simply to strengthen its balance sheet. Of course, many companies use leveraged funds to finance growth without any negative impact. When we study debt levels, we first look at both cash and debt levels together.
Check out our latest KEFI Gold and Copper analysis
How much debt does KEFI Gold and Copper have?
You can click the graph below to see the historical numbers, but it shows that as of June 2021, KEFI Gold and Copper had a debt of £ 2.26 million, up £ 403,000 over Great Britain, in one year. On the other hand, he has £ 948,0 thousand in cash, resulting in a net debt of around £ 1.32 million.
A look at the KEFI Gold and Copper commitments
According to the balance sheet, KEFI Gold and Copper had GBP 6.03 million in liabilities maturing within 12 months, but no longer term liabilities. To compensate for these obligations, he had cash in the amount of 948.0 thousand pounds sterling, as well as accounts receivable in the amount of 226.0 thousand pounds sterling with a maturity of 12 months. Thus, its liabilities exceed the amount of cash and (short-term) receivables by £ 4.86 million.
This deficit isn’t all that bad because KEFI Gold and Copper is worth £ 22.0m and can therefore raise enough capital to support its balance sheet if the need arises. But we definitely want to keep our eyes open for signs that his debt carries too much risk. When analyzing the level of debt, obviously, you should start with the balance sheet. But it is future earnings that, more than anything else, will determine KEFI Gold and Copper’s ability to maintain a healthy balance in the future. So if you want to know what the pros are thinking, you might be interested in this free analyst earnings forecast report.
Since KEFI Gold and Copper does not have significant operating revenue, shareholders are likely hoping that the company will soon develop a valuable new mine.
Let the buyer be vigilant
It is important to note that KEFI Gold and Copper had a loss before interest and taxes (EBIT) over the past year. Indeed, it lost a very sizable GBP 2.8 million in EBIT. When we look at this and remember the liabilities on the balance sheet in relation to cash, it seems unreasonable to us that the company has any debts. Quite frankly, we think the balance is far from being consistent, although it could be improved over time. Another cause for concern is the £ 5.4 million in negative free cash flow over the past twelve months. In short, this is a really risky stock. There is no doubt that the most we learn about debt is from the balance sheet. However, not all investment risk is in the balance sheet – far from it. For example, we have defined 7 warning signs for KEFI Gold and Copper (3 are significant) you should be aware of.
If you are interested in investing in businesses that can increase profits without the burden of debt, then check out this. is free a list of growing businesses that have net cash on their balance sheets.
This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst forecasts using objective methodology only, and our articles are not intended to be used as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. We are committed to providing you with long-term, focused analysis driven by fundamental data. Please note that our analysis may not include the latest announcements from price-sensitive companies or quality content. Simply Wall St has no position in any of the mentioned promotions.
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