Is F3 Uranium (CVE:FUU) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, F3 Uranium Corp. (CVE:FUU) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. 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. 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 F3 Uranium

How Much Debt Does F3 Uranium Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 F3 Uranium had CA$9.56m of debt, an increase on none, over one year. However, its balance sheet shows it holds CA$45.4m in cash, so it actually has CA$35.8m net cash.

A Look At F3 Uranium's Liabilities

We can see from the most recent balance sheet that F3 Uranium had liabilities of CA$2.20m falling due within a year, and liabilities of CA$11.6m due beyond that. Offsetting these obligations, it had cash of CA$45.4m as well as receivables valued at CA$369.1k due within 12 months. So it actually has CA$31.9m more liquid assets than total liabilities.

This surplus suggests that F3 Uranium has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, F3 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 it is F3 Uranium's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Given its lack of meaningful operating revenue, F3 Uranium shareholders no doubt hope it can fund itself until it can sell some combustibles.

So How Risky Is F3 Uranium?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months F3 Uranium lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$32m of cash and made a loss of CA$793k. However, it has net cash of CA$35.8m, so it has a bit of time before it will need more capital. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for F3 Uranium you should be aware of, and 3 of them don't sit too well with us.

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.