Is IsoEnergy (CVE:ISO) Using Too Much Debt?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that IsoEnergy Ltd. (CVE:ISO) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for IsoEnergy

How Much Debt Does IsoEnergy Carry?

The image below, which you can click on for greater detail, shows that at March 2024 IsoEnergy had debt of CA$39.4m, up from CA$31.1m in one year. But it also has CA$80.6m in cash to offset that, meaning it has CA$41.3m net cash.

How Strong Is IsoEnergy's Balance Sheet?

According to the last reported balance sheet, IsoEnergy had liabilities of CA$48.7m due within 12 months, and liabilities of CA$3.15m due beyond 12 months. Offsetting this, it had CA$80.6m in cash and CA$678.2k in receivables that were due within 12 months. So it can boast CA$29.5m more liquid assets than total liabilities.

This short term liquidity is a sign that IsoEnergy could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, IsoEnergy 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 IsoEnergy can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Since IsoEnergy doesn't have significant operating revenue, shareholders must hope it'll sell some fossil fuels, before it runs out of money.

So How Risky Is IsoEnergy?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that IsoEnergy had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CA$18m and booked a CA$19m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CA$41.3m. That means it could keep spending at its current rate for more than two years. 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. We've identified 3 warning signs with IsoEnergy , and understanding them should be part of your investment process.

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.