These 4 Measures Indicate That Athabasca Oil (TSE:ATH) Is Using Debt Safely

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Athabasca Oil Corporation (TSE:ATH) does carry debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Athabasca Oil's Debt?

The chart below, which you can click on for greater detail, shows that Athabasca Oil had CA$196.2m in debt in June 2025; about the same as the year before. But it also has CA$304.0m in cash to offset that, meaning it has CA$107.8m net cash.

How Healthy Is Athabasca Oil's Balance Sheet?

The latest balance sheet data shows that Athabasca Oil had liabilities of CA$215.5m due within a year, and liabilities of CA$370.3m falling due after that. On the other hand, it had cash of CA$304.0m and CA$144.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$137.7m.

Of course, Athabasca Oil has a market capitalization of CA$3.25b, so these liabilities are probably manageable. 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, Athabasca Oil also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Athabasca Oil

Also positive, Athabasca Oil grew its EBIT by 26% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Athabasca Oil's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Athabasca Oil has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Athabasca Oil produced sturdy free cash flow equating to 69% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Athabasca Oil has CA$107.8m in net cash. And we liked the look of last year's 26% year-on-year EBIT growth. So we don't think Athabasca Oil's use of debt is 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. For instance, we've identified 2 warning signs for Athabasca Oil (1 shouldn't be ignored) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.