Is First Graphene (ASX:FGR) Using Debt Sensibly?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 First Graphene Limited (ASX:FGR) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is First Graphene's Net Debt?

You can click the graphic below for the historical numbers, but it shows that First Graphene had AU$2.56m of debt in June 2025, down from AU$3.13m, one year before. However, it does have AU$2.61m in cash offsetting this, leading to net cash of AU$56.9k.

How Healthy Is First Graphene's Balance Sheet?

According to the last reported balance sheet, First Graphene had liabilities of AU$3.25m due within 12 months, and liabilities of AU$338.1k due beyond 12 months. On the other hand, it had cash of AU$2.61m and AU$115.8k worth of receivables due within a year. So it has liabilities totalling AU$861.6k more than its cash and near-term receivables, combined.

Given First Graphene has a market capitalization of AU$41.5m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, First Graphene also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is First Graphene's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for First Graphene

Given it has no significant operating revenue at the moment, shareholders will be hoping First Graphene can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is First Graphene?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months First Graphene lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of AU$2.8m and booked a AU$5.4m accounting loss. Given it only has net cash of AU$56.9k, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 5 warning signs with First Graphene (at least 3 which make us uncomfortable) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.