Does Coronado Global Resources (ASX: CRN) have a healthy balance sheet?
Legendary fund manager Li Lu (who Charlie Munger supported) once said, “The biggest risk in investing is not price volatility, but the possibility that you will suffer a permanent loss of capital. It’s only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Like many other companies Coronado World Resources Inc. (ASX: CRN) uses debt. But does this debt concern shareholders?
What risk does debt entail?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we think of a business’s use of debt, we first look at cash flow and debt together.
Check out our latest review for Coronado Global Resources
What is the debt of Coronado Global Resources?
You can click on the chart below for historical numbers, but it shows Coronado Global Resources had $ 366.5 million in debt as of June 2021, up from $ 454.7 million a year earlier. However, he also had $ 113.7 million in cash, so his net debt is $ 252.9 million.
How healthy is Coronado Global Resources’ balance sheet?
We can see from the most recent balance sheet that Coronado Global Resources had liabilities of US $ 417.6 million due within one year and liabilities of US $ 933.7 million due within one year. of the. On the other hand, it had US $ 113.7 million in cash and US $ 228.6 million in receivables due within one year. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by US $ 1.01 billion.
This deficit is sizable compared to its market capitalization of US $ 1.22 billion, so he suggests shareholders keep an eye on Coronado Global Resources’ use of debt. This suggests that shareholders would be heavily diluted if the company needed to consolidate its balance sheet quickly. There is no doubt that we learn the most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Coronado Global Resources’ ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check out this free report showing analysts’ earnings forecasts.
Over 12 months, Coronado Global Resources recorded a loss in EBIT and saw sales fall to US $ 1.5 billion, a decrease of 8.6%. This is not what we hope to see.
During the last twelve months, Coronado Global Resources recorded a loss of profit before interest and taxes (EBIT). Indeed, he lost a very considerable amount of US $ 167 million in EBIT. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. We therefore believe that its record is a bit strained, but not irreparable. Another reason to be cautious is that US $ 53 million has been lost in negative free cash flow over the past twelve months. So, to be frank, we think it’s risky. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. Be aware that Coronado Global Resources displays 3 warning signs in our investment analysis , and 2 of them are a bit disturbing …
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page. free list of growing companies that have net cash on the balance sheet.
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