Is Baru Gold (CVE:BARU) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Baru Gold Corporation (CVE:BARU) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Baru Gold's Debt?

The image below, which you can click on for greater detail, shows that at August 2025 Baru Gold had debt of CA$3.27m, up from CA$2.90m in one year. However, it also had CA$885.9k in cash, and so its net debt is CA$2.39m.

How Strong Is Baru Gold's Balance Sheet?

According to the balance sheet data, Baru Gold had liabilities of CA$8.97m due within 12 months, but no longer term liabilities. Offsetting this, it had CA$885.9k in cash and CA$9.7k in receivables that were due within 12 months. So it has liabilities totalling CA$8.08m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Baru Gold is worth CA$23.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Baru Gold will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for Baru Gold

Given its lack of meaningful operating revenue, investors are probably hoping that Baru Gold finds some valuable resources, before it runs out of money.

Caveat Emptor

Over the last twelve months Baru Gold produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping CA$2.6m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$2.1m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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 4 warning signs for Baru Gold (2 are significant) 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.

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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.