Getty Copper (CVE:GTC) has good debt
Howard Marks said it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about…and that every practical investor that I know is worried”. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Above all, Getty Copper Inc. (CVE:GTC) is in debt. But the real question is whether this debt makes the business risky.
What risk does debt carry?
Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we look at debt levels, we first consider cash and debt levels, together.
Our analysis indicates that GTC is potentially overvalued!
How much debt does Getty Copper have?
The image below, which you can click on for more details, shows that in June 2022, Getty Copper had C$2.32 million in debt, up from C$1.98 million in one year. Net debt is about the same, since she doesn’t have a lot of cash.
A Look at Getty Copper’s Responsibilities
Zooming in on the latest balance sheet data, we can see that Getty Copper had liabilities of C$1.58 million due within 12 months and liabilities of C$1.25 million due beyond. In return, he had CA$38.6k in cash and CA$3.3k in receivables due within 12 months. Thus, its liabilities total C$2.78 million more than the combination of its cash and short-term receivables.
That shortfall is sizable relative to its C$4.27 million market capitalization, so he suggests shareholders watch Getty Copper’s use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet quickly. When analyzing debt levels, the balance sheet is the obvious starting point. But it’s Getty Copper’s earnings that will influence the balance sheet going forward. So, when considering debt, it is definitely worth looking at the earnings trend. Click here for an interactive preview.
Given that Getty Copper has no significant operating revenue, shareholders are likely hoping it will develop a new mine of value before too long.
It is important to note that Getty Copper posted a loss in earnings before interest and taxes (EBIT) over the past year. Indeed, it lost CA$151,000 in EBIT. When we look at this and recall the liabilities on its balance sheet, versus cash, it seems unwise to us that the company has debt. Quite frankly, we think the track record falls short, although it could improve over time. However, it doesn’t help that he spent CA$691,000 in cash in the past year. In short, it’s a really risky title. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks reside on the balance sheet, far from it. Example: we have identified 4 warning signs for Getty Copper you should be aware, and 3 of them are a bit of a concern.
If you are interested in investing in companies that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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