Is First Atlantic Nickel (CVE:FAN) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that First Atlantic Nickel Corp. (CVE:FAN) 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 and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does First Atlantic Nickel Carry?

The image below, which you can click on for greater detail, shows that at July 2025 First Atlantic Nickel had debt of CA$2.69m, up from none in one year. However, it also had CA$1.41m in cash, and so its net debt is CA$1.29m.

How Strong Is First Atlantic Nickel's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that First Atlantic Nickel had liabilities of CA$241.2k due within 12 months and liabilities of CA$2.71m due beyond that. Offsetting this, it had CA$1.41m in cash and CA$200.2k in receivables that were due within 12 months. So its liabilities total CA$1.34m more than the combination of its cash and short-term receivables.

Since publicly traded First Atlantic Nickel shares are worth a total of CA$19.0m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. 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.

See our latest analysis for First Atlantic Nickel

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

Caveat Emptor

Importantly, First Atlantic Nickel had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$3.0m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CA$6.5m of cash over the last year. So suffice it to say we consider the stock very risky. 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. Be aware that First Atlantic Nickel is showing 5 warning signs in our investment analysis , and 3 of those make us uncomfortable...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.