Is Ur-Energy (TSE:URE) Using Debt In A Risky Way?

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 can see that Ur-Energy Inc. (TSE:URE) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Our analysis indicates that URE is potentially undervalued!

What Is Ur-Energy's Net Debt?

As you can see below, Ur-Energy had US$12.3m of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$43.3m in cash, leading to a US$30.9m net cash position.

A Look At Ur-Energy's Liabilities

We can see from the most recent balance sheet that Ur-Energy had liabilities of US$8.57m falling due within a year, and liabilities of US$41.6m due beyond that. On the other hand, it had cash of US$43.3m and US$15.0k worth of receivables due within a year. So its liabilities total US$6.85m more than the combination of its cash and short-term receivables.

Given Ur-Energy has a market capitalization of US$279.6m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Ur-Energy also has more cash than debt, so we're pretty confident 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 Ur-Energy's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

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

So How Risky Is Ur-Energy?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Ur-Energy lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$14m and booked a US$16m accounting loss. Given it only has net cash of US$30.9m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Ur-Energy may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. For example, we've discovered 3 warning signs for Ur-Energy (2 can't be ignored!) that you should be aware of before investing here.

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.