Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that McEwen Mining Inc. (NYSE:MUX) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

What Is McEwen Mining's Debt?

As you can see below, McEwen Mining had US$40.0m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has US$42.6m in cash to offset that, meaning it has US$2.63m net cash.

How Strong Is McEwen Mining's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that McEwen Mining had liabilities of US$43.0m due within 12 months and liabilities of US$116.9m due beyond that. Offsetting this, it had US$42.6m in cash and US$5.48m in receivables that were due within 12 months. So it has liabilities totalling US$111.8m more than its cash and near-term receivables, combined.

Given McEwen Mining has a market capitalization of US$575.3m, 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. Despite its noteworthy liabilities, McEwen Mining boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if McEwen Mining can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year McEwen Mining wasn't profitable at an EBIT level, but managed to grow its revenue by 51%, to US$186m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is McEwen Mining?

Although McEwen Mining had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$87m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. One positive is that McEwen Mining is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for McEwen Mining you should be aware of, and 2 of them are a bit concerning.

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.

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