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Unfortunately for shareholders, when Dreadnought Resources Limited (ASX:DRE) reported results for the period to June 2019, its auditors, Grant Thornton, expressed uncertainty about whether it can continue as a going concern. This means that, based on the financial results to that date, the company arguably should raise capital, or otherwise strengthen the balance sheet, as soon as possible.
Given its situation, it may not be in a good position to raise capital on favorable terms. So shareholders should absolutely be taking a close look at how risky the balance sheet is. The big consideration is whether it can repay its debt, since in the worst case scenario, creditors could force the company to bankruptcy.
View our latest analysis for Dreadnought Resources
How Much Debt Does Dreadnought Resources Carry?
You can click the graphic below for the historical numbers, but it shows that as of June 2019 Dreadnought Resources had AU$560.5k of debt, an increase on , over one year. However, its balance sheet shows it holds AU$648.0k in cash, so it actually has AU$87.5k net cash.
How Healthy Is Dreadnought Resources's Balance Sheet?
We can see from the most recent balance sheet that Dreadnought Resources had liabilities of AU$194.6k falling due within a year, and liabilities of AU$560.5k due beyond that. Offsetting this, it had AU$648.0k in cash and AU$18.9k in receivables that were due within 12 months. So its liabilities total AU$88.2k more than the combination of its cash and short-term receivables.
This state of affairs indicates that Dreadnought Resources's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the AU$10.3m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Dreadnought Resources 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 it is Dreadnought Resources's earnings that will influence how the balance sheet holds up in the future. 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.
Given its lack of meaningful operating revenue, investors are probably hoping that Dreadnought Resources finds some valuable resources, before it runs out of money.
So How Risky Is Dreadnought Resources?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Dreadnought Resources had negative earnings before interest and tax (EBIT), over the last year. Indeed, in that time it burnt through AU$697k of cash and made a loss of AU$681k. With only AU$87.5k on the balance sheet, it would appear that its going to need to raise capital again soon. Dreadnought Resources's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. We prefer to avoid a company after its auditor has expressed any uncertainty about its ability to continue as a going concern. That's because we find it more comfortable to invest in companies that always keep the balance sheet reasonably strong. 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 Dreadnought Resources insider transactions.