Is First Atlantic Nickel (CVE:FAN) A Risky Investment?

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.' 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. We note that First Atlantic Nickel Corp. (CVE:FAN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is First Atlantic Nickel's Debt?

As you can see below, at the end of April 2025, First Atlantic Nickel had CA$3.06m of debt, up from none a year ago. Click the image for more detail. However, it does have CA$3.13m in cash offsetting this, leading to net cash of CA$72.2k.

A Look At First Atlantic Nickel's Liabilities

According to the last reported balance sheet, First Atlantic Nickel had liabilities of CA$1.14m due within 12 months, and liabilities of CA$3.08m due beyond 12 months. Offsetting these obligations, it had cash of CA$3.13m as well as receivables valued at CA$251.7k due within 12 months. So its liabilities total CA$841.1k more than the combination of its cash and short-term receivables.

Since publicly traded First Atlantic Nickel shares are worth a total of CA$12.8m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, First Atlantic Nickel boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is First Atlantic Nickel'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.

View our latest analysis for First Atlantic Nickel

Since First Atlantic Nickel has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

So How Risky Is First Atlantic Nickel?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year First Atlantic Nickel had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CA$5.5m of cash and made a loss of CA$2.6m. With only CA$72.2k on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 5 warning signs for First Atlantic Nickel that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.