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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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Atalaya Mining Plc (LON:ATYM) does carry debt. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Atalaya Mining
How Much Debt Does Atalaya Mining Carry?
The image below, which you can click on for greater detail, shows that at March 2021 Atalaya Mining had debt of €53.0m, up from €24.2m in one year. However, its balance sheet shows it holds €63.7m in cash, so it actually has €10.7m net cash.
A Look At Atalaya Mining's Liabilities
According to the last reported balance sheet, Atalaya Mining had liabilities of €75.8m due within 12 months, and liabilities of €78.6m due beyond 12 months. Offsetting these obligations, it had cash of €63.7m as well as receivables valued at €48.5m due within 12 months. So its liabilities total €42.2m more than the combination of its cash and short-term receivables.
Since publicly traded Atalaya Mining shares are worth a total of €568.7m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Atalaya Mining boasts net cash, so it's fair to say it does not have a heavy debt load!
Better yet, Atalaya Mining grew its EBIT by 129% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Atalaya Mining can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.