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. It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Cpl Resources plc (ISE:DQ5) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for Cpl Resources
How Much Debt Does Cpl Resources Carry?
As you can see below, Cpl Resources had €5.70m of debt, at June 2019, which is about the same the year before. You can click the chart for greater detail. But on the other hand it also has €45.8m in cash, leading to a €40.1m net cash position.
A Look At Cpl Resources's Liabilities
Zooming in on the latest balance sheet data, we can see that Cpl Resources had liabilities of €80.8m due within 12 months and no liabilities due beyond that. On the other hand, it had cash of €45.8m and €114.0m worth of receivables due within a year. So it can boast €78.9m more liquid assets than total liabilities.
This luscious liquidity implies that Cpl Resources's balance sheet is sturdy like a giant sequoia tree. On this view, it seems its balance sheet is as strong as a black-belt karate master. Simply put, the fact that Cpl Resources has more cash than debt is arguably a good indication that it can manage its debt safely.
In addition to that, we're happy to report that Cpl Resources has boosted its EBIT by 39%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Cpl Resources's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.