Does Cameco (TSE:CCO) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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. We note that Cameco Corporation (TSE:CCO) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Cameco

What Is Cameco's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2023 Cameco had CA$1.11b of debt, an increase on CA$1.04b, over one year. However, it does have CA$2.47b in cash offsetting this, leading to net cash of CA$1.36b.

A Look At Cameco's Liabilities

Zooming in on the latest balance sheet data, we can see that Cameco had liabilities of CA$437.3m due within 12 months and liabilities of CA$2.21b due beyond that. Offsetting this, it had CA$2.47b in cash and CA$259.1m in receivables that were due within 12 months. So it can boast CA$85.4m more liquid assets than total liabilities.

This state of affairs indicates that Cameco's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CA$16.6b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Cameco has more cash than debt is arguably a good indication that it can manage its debt safely.

Better yet, Cameco grew its EBIT by 214% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Cameco can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Cameco 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. Happily for any shareholders, Cameco actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Cameco has net cash of CA$1.36b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of CA$207m, being 114% of its EBIT. So we don't think Cameco's use of debt is risky. 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. Case in point: We've spotted 2 warning signs for Cameco 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.