When Vango Mining Limited (ASX:VAN) reported its results to June 2019 its auditors, Ernst & Young LLP could not be sure that it would be able to continue as a going concern in the next year. This means that, based on the financial results to that date, the company arguably should raise capital, or otherwise strengthen the balance sheet, as soon as possible.
Given its situation, it may not be in a good position to raise capital on favorable terms. So it is suddenly extremely important to consider whether the company is taking too much risk on its balance sheet. The big consideration is whether it can repay its debt, since in the worst case scenario, creditors could force the company to bankruptcy.
What Is Vango Mining's Net Debt?
As you can see below, at the end of June 2019, Vango Mining had AU$15.6m of debt, up from AU$10.5m a year ago. Click the image for more detail. However, because it has a cash reserve of AU$1.49m, its net debt is less, at about AU$14.1m.
How Strong Is Vango Mining's Balance Sheet?
According to the last reported balance sheet, Vango Mining had liabilities of AU$19.1m due within 12 months, and liabilities of AU$6.49m due beyond 12 months. Offsetting these obligations, it had cash of AU$1.49m as well as receivables valued at AU$391.3k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$23.7m.
Given Vango Mining has a market capitalization of AU$122.0m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Vango Mining's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.
Given its lack of meaningful operating revenue, investors are probably hoping that Vango Mining finds some valuable resources, before it runs out of money.
Importantly, Vango Mining had negative earnings before interest and tax (EBIT), over the last year. To be specific the EBIT loss came in at AU$6.3m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through AU$15m of cash over the last year. So suffice it to say we consider the stock very risky. We're too cautious to want to invest in a company after an auditor has expressed doubts about its ability to continue as a going concern. That's because we find it more comfortable to invest in companies that always keep the balance sheet reasonably strong. 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 Vango Mining's profit, revenue, and operating cashflow have changed over the last few years.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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