Is Nouveau Monde Graphite (TSE:NOU) Using Debt In A Risky Way?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Nouveau Monde Graphite Inc. (TSE:NOU) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

How Much Debt Does Nouveau Monde Graphite Carry?

As you can see below, at the end of June 2025, Nouveau Monde Graphite had CA$17.2m of debt, up from CA$15.8m a year ago. Click the image for more detail. However, its balance sheet shows it holds CA$73.5m in cash, so it actually has CA$56.3m net cash.

How Strong Is Nouveau Monde Graphite's Balance Sheet?

According to the last reported balance sheet, Nouveau Monde Graphite had liabilities of CA$47.2m due within 12 months, and liabilities of CA$3.29m due beyond 12 months. On the other hand, it had cash of CA$73.5m and CA$4.25m worth of receivables due within a year. So it can boast CA$27.3m more liquid assets than total liabilities.

This surplus suggests that Nouveau Monde Graphite has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Nouveau Monde Graphite has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Nouveau Monde Graphite'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.

View our latest analysis for Nouveau Monde Graphite

Given its lack of meaningful operating revenue, investors are probably hoping that Nouveau Monde Graphite finds some valuable resources, before it runs out of money.

So How Risky Is Nouveau Monde Graphite?

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 Nouveau Monde Graphite lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CA$70m and booked a CA$63m accounting loss. However, it has net cash of CA$56.3m, 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Nouveau Monde Graphite has 4 warning signs we think you should be aware of.

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.