Is Avino Silver & Gold Mines (TSE:ASM) A Risky Investment?

Some say that volatility, rather than debt, is the best way to view risk as an investor, but Warren Buffett famously said, "Volatility is far from synonymous with risk." It is only natural to consider a company's balance sheet when investigating how risky it is, as debt often arises when a company collapses. We note that Avino Silver & Gold Mines Ltd. (TSE: ASM) has debt on its balance sheet. But is this debt a concern of shareholders?
When is debt dangerous?
In general, debt only becomes a real problem if a company cannot pay it off simply by raising capital or using its own cash flow. When things get really bad, lenders can take control of the business. However, a more common (but still costly) occurrence is when a company needs to issue stocks at cheap prices and permanently dilute shareholders in order to prop up its balance sheet. The advantage of debt, of course, is that it is often cheap capital, especially when it replaces the dilution in a company that is capable of reinvesting with high returns. The first step in looking at a company's debt is to look at its cash and debt together.
Check out our latest analysis for Avino silver and gold mines
What is Avino Silver & Gold Mines Debt?
The image below, which you can click for more details, shows that Avino Silver & Gold Mines had debt of $ 4.38 million at the end of June 2020, a decrease of $ 7.39 million over a year . However, it has a cash settlement of $ 10.4 million, resulting in a net cash amount of $ 6.01 million.
Debt Equity History Analysis
How strong is the balance sheet of Avino Silver & Gold Mines?
The latest balance sheet shows that Avino Silver & Gold Mines has debt of $ 7.19 million due in one year and an additional $ 7.86 million of debt due. On the flip side, it had $ 10.4 million in cash and $ 6.69 million in receivables due within one year. So the company has $ 2.03 million more cash than its total debt.
This excess suggests that Avino Silver & Gold Mines has a conservative balance sheet and could likely clear its debt without much difficulty. In short, Avino Silver & Gold Mines has net cash. So it is fair to say that there is no such thing as a high debt burden! When analyzing debt, the obvious starting point is the balance sheet. Ultimately, however, future profitability of the business will determine whether Avino Silver & Gold Mines can strengthen its balance sheet over time. So if your focus is on the future, check out this free analyst earnings forecast report.
Within 12 months, Avino Silver & Gold Mines posted a loss on EBIT level and posted a drop in sales to $ 29 million, a decrease of 6.7%. We wouldn't hope to see that.
How risky are Avino silver and gold mines?
We have no doubt that loss-making companies are generally riskier than profitable ones. We note that Avino Silver & Gold Mines achieved earnings before interest and taxes (EBIT) last year. During the same period there was negative free cash flow of $ 3.1 million and an accounting loss of $ 3.0 million. With only $ 6.01 million on the balance sheet, it appears that capital will have to be raised again soon. Although the balance sheet seems sufficiently liquid, we are always a little nervous about debt if a company does not produce free cash flow on a regular basis. Clearly, the balance sheet is the area to focus on when analyzing debt. Ultimately, however, any business may have off-balance sheet risks. To that end, be sure to read up on the 4 warning signs we discovered at Avino Silver & Gold Mines (including one that is a little worrying).
Of course, if you're an investor who prefers to buy stocks with no debt burden, don't hesitate to discover our exclusive list of Net Cash Growth stocks today.
This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.

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