Glen Eagle Resources (CVE:GER) Debt But No Earnings
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the 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 its use of debt, since debt overload can lead to ruin. Importantly, Glen Eagle Resources Inc. (CVE:GER) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for Glen Eagle Resources
What Is Glen Eagle Resources's Debt?
The image below, which you can click on for greater detail, shows that at March 2019 Glen Eagle Resources had debt of CA$400.0k, up from none in one year. On the flip side, it has CA$26.7k in cash leading to net debt of about CA$373.2k.
How Healthy Is Glen Eagle Resources's Balance Sheet?
According to the last reported balance sheet, Glen Eagle Resources had liabilities of CA$873.3k due within 12 months, and liabilities of CA$465.1k due beyond 12 months. Offsetting this, it had CA$26.7k in cash and CA$27.0k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$1.28m.
Given Glen Eagle Resources has a market capitalization of CA$7.46m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But it is Glen Eagle Resources's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year Glen Eagle Resources managed to grow its revenue by 24%, to CA$2.2m. Shareholders probably have their fingers crossed that it can grow its way to profits.
Caveat Emptor
While we can certainly savour Glen Eagle Resources's tasty revenue growth, its negative earnings before interest and tax (EBIT) leaves a bitter aftertaste. Its EBIT loss was a whopping CA$759k. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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 CA$918k of cash over the last year. So suffice it to say we consider the stock very risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Glen Eagle Resources insider transactions.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.
