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Does Dundee (TSE:DC.A) Have A Healthy Balance Sheet?

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·3 min read
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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 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 note that Dundee Corporation (TSE:DC.A) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Dundee

What Is Dundee's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Dundee had CA$26.4m of debt in June 2021, down from CA$45.4m, one year before. However, its balance sheet shows it holds CA$90.9m in cash, so it actually has CA$64.5m net cash.

debt-equity-history-analysis
debt-equity-history-analysis

A Look At Dundee's Liabilities

Zooming in on the latest balance sheet data, we can see that Dundee had liabilities of CA$35.8m due within 12 months and liabilities of CA$30.5m due beyond that. Offsetting these obligations, it had cash of CA$90.9m as well as receivables valued at CA$12.8m due within 12 months. So it actually has CA$37.4m more liquid assets than total liabilities.

It's good to see that Dundee has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Dundee boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Dundee will need earnings to service that debt. 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.

Over 12 months, Dundee reported revenue of CA$36m, which is a gain of 56%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Dundee?

While Dundee lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CA$13m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. Keeping in mind its 56% revenue growth over the last year, we think there's a decent chance the company is on track. We'd see further strong growth as an optimistic indication. 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. To that end, you should be aware of the 1 warning sign we've spotted with Dundee .

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.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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