Warren Buffett said: “Volatility is far from synonymous with risk”. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. We can see that SSR Mines Inc. (TSE: SSRM) uses debt in its business. But the real question is whether this debt makes the business risky.
When Is Debt a Problem?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
Check out our latest review for SSR Mining
How much debt is SSR Mining?
The image below, which you can click for more details, shows that in March 2021, SSR Mining had a debt of US $ 369.3 million, up from US $ 171.7 million in a year. However, it has US $ 892.0 million in cash offsetting this, leading to net cash of US $ 522.7 million.
How strong is SSR Mining’s balance sheet?
The latest balance sheet data shows that SSR Mining had liabilities of US $ 238.4 million due within one year and liabilities of US $ 1.07 billion due thereafter. In compensation for these obligations, it had cash of US $ 892.0 million as well as receivables valued at US $ 97.4 million due within 12 months. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by $ 318.7 million.
Considering that SSR Mining has a market capitalization of US $ 3.94 billion, it is hard to believe that these liabilities pose a significant threat. Having said that, it is clear that we must continue to monitor his record lest it get worse. While it has some liabilities to note, SSR Mining also has more cash than debt, so we’re pretty confident that it can handle its debt safely.
Best of all, SSR Mining increased its EBIT by 149% last year, which is an impressive improvement. This boost will make it even easier to pay down debt in the future. There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine SSR Mining’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check out this free report showing analysts’ earnings forecasts.
Finally, while the IRS may love accounting profits, lenders only accept hard cash. SSR Mining may have net cash on the balance sheet, but it’s always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and capacity. to manage debt. Over the past three years, SSR Mining has recorded free cash flow of 35% of its EBIT, which is lower than expected. It’s not great when it comes to paying down debt.
We could understand if investors are concerned about SSR Mining’s liabilities, but we can take comfort in the fact that it has net cash of $ 522.7 million. And it has impressed us with its EBIT growth of 149% over the past year. So, is SSR Mining’s debt a risk? It does not seem to us. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. Be aware that SSR Mining shows 1 warning sign in our investment analysis , you must know…
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.
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