Here’s Why Barrick Gold (TSE: ABX) Can Responsibly Manage Debt


Warren Buffett said: “Volatility is far from synonymous with risk”. So it can be obvious that you need to consider debt, when you think about how risky a given stock is, because too much debt can sink a business. We can see that Barrick Gold Company (TSE: ABX) uses debt in its business. But does this debt worry shareholders?

When is debt dangerous?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. If things really go wrong, lenders can take over the business. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, debt can be an important tool in businesses, especially capital intensive businesses. 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 Barrick Gold

What is Barrick Gold’s net debt?

The graph below, which you can click for more details, shows Barrick Gold owed US $ 5.08 billion in debt as of June 2021; about the same as the year before. However, his balance sheet shows that he has $ 5.14 billion in cash, so he actually has $ 54.0 million in net cash.

TSX: ABX Debt to Equity History October 22, 2021

How strong is Barrick Gold’s balance sheet?

According to the latest published balance sheet, Barrick Gold had liabilities of US $ 1.80 billion due within 12 months and liabilities of US $ 12.6 billion due beyond 12 months. On the other hand, it had US $ 5.14 billion in cash and US $ 554.0 million in receivables due within one year. It therefore has liabilities totaling US $ 8.66 billion more than its cash and short-term receivables combined.

Barrick Gold has a very large market cap of US $ 34.5 billion, so it could most likely raise funds to improve its balance sheet, should the need arise. But we absolutely want to keep our eyes open for indications that its debt is too risky. Despite its notable liabilities, Barrick Gold has a net cash flow, so it’s fair to say that it doesn’t have heavy debt!

On top of that, we are happy to report that Barrick Gold has increased its EBIT by 41%, reducing the specter of future debt repayments. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Barrick Gold’s ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Finally, while the IRS may love accounting profits, lenders only accept hard cash. Barrick Gold may have net cash on the balance sheet, but it’s always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its needs and its capacity. to manage debt. Over the past three years, Barrick Gold has recorded free cash flow of 54% of its EBIT, which is close to normal given that free cash flow excludes interest and taxes. This hard cash allows him to reduce his debt whenever he wants.

In summary

Although Barrick Gold has more liabilities than liquid assets, it also has net liquidity of US $ 54.0 million. And we liked the appearance of the 41% year-over-year EBIT growth from last year. So is Barrick Gold debt a risk? It does not seem to us. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. For example – Barrick Gold has 2 warning signs we think you should be aware.

If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash net growth stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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