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The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Pantheon Resources Plc (LON:PANR) makes use of debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Pantheon Resources
What Is Pantheon Resources's Net Debt?
As you can see below, at the end of December 2021, Pantheon Resources had US$39.7m of debt, up from none a year ago. Click the image for more detail. But it also has US$92.7m in cash to offset that, meaning it has US$52.9m net cash.
A Look At Pantheon Resources' Liabilities
We can see from the most recent balance sheet that Pantheon Resources had liabilities of US$4.58m falling due within a year, and liabilities of US$55.8m due beyond that. On the other hand, it had cash of US$92.7m and US$275.3k worth of receivables due within a year. So it can boast US$32.6m more liquid assets than total liabilities.
This short term liquidity is a sign that Pantheon Resources could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Pantheon 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 you can't view debt in total isolation; since Pantheon Resources will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Given its lack of meaningful operating revenue, Pantheon Resources shareholders no doubt hope it can fund itself until it can sell some combustibles.