Is NexGen Energy (TSE:NXE) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies NexGen Energy Ltd. (TSE:NXE) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for NexGen Energy

What Is NexGen Energy's Debt?

The chart below, which you can click on for greater detail, shows that NexGen Energy had CA$74.8m in debt in September 2022; about the same as the year before. But it also has CA$147.5m in cash to offset that, meaning it has CA$72.7m net cash.

How Healthy Is NexGen Energy's Balance Sheet?

We can see from the most recent balance sheet that NexGen Energy had liabilities of CA$18.1m falling due within a year, and liabilities of CA$78.1m due beyond that. On the other hand, it had cash of CA$147.5m and CA$1.02m worth of receivables due within a year. So it can boast CA$52.3m more liquid assets than total liabilities.

Having regard to NexGen Energy's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CA$3.11b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that NexGen Energy has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine NexGen Energy'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.

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

So How Risky Is NexGen Energy?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that NexGen Energy had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$96m of cash and made a loss of CA$50m. With only CA$72.7m 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. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for NexGen Energy (of which 1 is a bit concerning!) 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.