Warren Buffett famously stated, ‘Volatility is far from synonymous with risk.’ When we consider about how risky a company is, we always like to see at its apply of debt, since debt overload can lead to ruin. We can see that Strathcona Resources Ltd. (TSE:SCR) does apply debt in its business. But should shareholders be worried about its apply of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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 receive debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, toreceiveher.
How Much Debt Does Strathcona Resources Carry?
You can click the graphic below for the historical numbers, but it displays that Strathcona Resources had CA$1.21b of debt in September 2025, down from CA$2.46b, one year before. However, its balance sheet displays it holds CA$1.29b in cash, so it actually has CA$80.8m net cash.
How Strong Is Strathcona Resources’ Balance Sheet?
According to the last reported balance sheet, Strathcona Resources had liabilities of CA$2.25b due within 12 months, and liabilities of CA$2.16b due beyond 12 months. On the other hand, it had cash of CA$1.29b and CA$251.9m worth of receivables due within a year. So its liabilities total CA$2.87b more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Strathcona Resources has a market capitalization of CA$5.95b, and so it could probably strengthen its balance sheet by raising capital if it requireded to. However, it is still worthwhile taking a close see at its ability to pay off debt. While it does have liabilities worth noting, Strathcona Resources also has more cash than debt, so we’re pretty confident it can manage its debt safely.
View our latest analysis for Strathcona Resources
Unfortunately, Strathcona Resources’s EBIT flopped 14% over the last four quarters. If earnings continue to decline at that rate then handling the debt will be more difficult than taking three children under 5 to a fancy pants restaurant. 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 Strathcona Resources can strengthen its balance sheet over time. So if you want to see what the professionals consider, you might find this free report on analyst profit forecasts to be interesting.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Strathcona Resources has net cash on its balance sheet, it’s still worth taking a see at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to assist us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, Strathcona Resources recorded free cash flow worth 51% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing Up
While Strathcona Resources does have more liabilities than liquid assets, it also has net cash of CA$80.8m. So although we see some areas for improvement, we’re not too worried about Strathcona Resources’s balance sheet. There’s no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that finish, you should learn about the 2 warning signs we’ve spotted with Strathcona Resources (including 1 which is a bit unpleasant) .
If you’re interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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 utilizing an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to acquire or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focapplyd 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.
