Fission Uranium (TSE:FCU) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Fission Uranium Corp. (TSE:FCU) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Fission Uranium

How Much Debt Does Fission Uranium Carry?

The image below, which you can click on for greater detail, shows that Fission Uranium had debt of CA$7.13m at the end of June 2021, a reduction from CA$10.7m over a year. However, its balance sheet shows it holds CA$55.9m in cash, so it actually has CA$48.7m net cash.

How Healthy Is Fission Uranium's Balance Sheet?

We can see from the most recent balance sheet that Fission Uranium had liabilities of CA$2.77m falling due within a year, and liabilities of CA$9.16m due beyond that. On the other hand, it had cash of CA$55.9m and CA$397.9k worth of receivables due within a year. So it actually has CA$44.3m more liquid assets than total liabilities.

This short term liquidity is a sign that Fission Uranium could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Fission Uranium boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Fission Uranium 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.

Given its lack of meaningful operating revenue, Fission Uranium shareholders no doubt hope it can fund itself until it can sell some combustibles.

So How Risky Is Fission Uranium?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Fission Uranium had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CA$13m of cash and made a loss of CA$11m. With only CA$48.7m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example Fission Uranium has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.
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