Is ATEX Resources (CVE:ATX) Weighed On By Its Debt Load?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, ATEX Resources Inc. (CVE:ATX) does carry debt. But should shareholders be worried about its use of debt?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for ATEX Resources

What Is ATEX Resources's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 ATEX Resources had CA$9.60m of debt, an increase on none, over one year. However, it does have CA$13.2m in cash offsetting this, leading to net cash of CA$3.57m.

How Strong Is ATEX Resources' Balance Sheet?

According to the last reported balance sheet, ATEX Resources had liabilities of CA$1.40m due within 12 months, and liabilities of CA$9.61m due beyond 12 months. Offsetting this, it had CA$13.2m in cash and CA$275.2k in receivables that were due within 12 months. So it actually has CA$2.43m more liquid assets than total liabilities.

Having regard to ATEX Resources' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CA$165.7m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that ATEX Resources has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ATEX Resources 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.

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

So How Risky Is ATEX Resources?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months ATEX Resources lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CA$24m and booked a CA$29m accounting loss. With only CA$3.57m on the balance sheet, it would appear that its going to need to raise capital again 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. 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 instance, we've identified 4 warning signs for ATEX Resources (2 are concerning) 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.