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.' 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. We can see that Jaguar Mining Inc. (TSE:JAG) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Jaguar Mining

What Is Jaguar Mining's Debt?

The chart below, which you can click on for greater detail, shows that Jaguar Mining had US$3.03m in debt in December 2021; about the same as the year before. But on the other hand it also has US$40.4m in cash, leading to a US$37.3m net cash position.

A Look At Jaguar Mining's Liabilities

The latest balance sheet data shows that Jaguar Mining had liabilities of US$30.8m due within a year, and liabilities of US$27.7m falling due after that. Offsetting this, it had US$40.4m in cash and US$5.24m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$13.0m.

Given Jaguar Mining has a market capitalization of US$254.5m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Jaguar Mining boasts net cash, so it's fair to say it does not have a heavy debt load!

In fact Jaguar Mining's saving grace is its low debt levels, because its EBIT has tanked 45% in the last twelve months. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Jaguar Mining can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.