Is B2Gold (TSE:BTO) A Risky Investment?

Simply Wall St · 10/18 11:09

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 B2Gold Corp. (TSE:BTO) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 B2Gold

What Is B2Gold's Debt?

As you can see below, B2Gold had US$14.4m of debt at June 2024, down from US$27.4m a year prior. But on the other hand it also has US$466.8m in cash, leading to a US$452.5m net cash position.

debt-equity-history-analysis
TSX:BTO Debt to Equity History October 18th 2024

A Look At B2Gold's Liabilities

Zooming in on the latest balance sheet data, we can see that B2Gold had liabilities of US$316.3m due within 12 months and liabilities of US$1.02b due beyond that. On the other hand, it had cash of US$466.8m and US$37.6m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$833.8m.

Given B2Gold has a market capitalization of US$4.32b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, B2Gold also has more cash than debt, so we're pretty confident it can manage its debt safely.

On the other hand, B2Gold's EBIT dived 17%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. 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 B2Gold 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While B2Gold has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, B2Gold recorded free cash flow of 46% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

Although B2Gold's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$452.5m. So we don't have any problem with B2Gold's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for B2Gold (1 makes us a bit uncomfortable) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.