NexGen Energy (TSE:NXE) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that NexGen Energy Ltd. (TSE:NXE) does use debt in its business. But the real question is whether this debt is making the company risky.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Net Debt?

As you can see below, NexGen Energy had CA$72.0m of debt at December 2021, down from CA$226.9m a year prior. But it also has CA$211.1m in cash to offset that, meaning it has CA$139.1m net cash.

How Healthy Is NexGen Energy's Balance Sheet?

According to the last reported balance sheet, NexGen Energy had liabilities of CA$8.21m due within 12 months, and liabilities of CA$77.0m due beyond 12 months. On the other hand, it had cash of CA$211.1m and CA$1.18m worth of receivables due within a year. So it can boast CA$127.1m more liquid assets than total liabilities.

This surplus suggests that NexGen Energy has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, NexGen Energy boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if NexGen Energy 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, NexGen Energy shareholders no doubt hope it can fund itself until it can sell some combustibles.

So How Risky Is NexGen Energy?

Statistically speaking companies that lose money are riskier than those that make money. 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$64m of cash and made a loss of CA$119m. Given it only has net cash of CA$139.1m, the company may need to raise more capital if it doesn't reach break-even 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. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 4 warning signs we've spotted with NexGen Energy (including 1 which is a bit concerning) .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.