Would American Battery Technology (NASDAQ:ABAT) Be Better Off With Less Debt?

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.' 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. As with many other companies American Battery Technology Company (NASDAQ:ABAT) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for American Battery Technology

How Much Debt Does American Battery Technology Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 American Battery Technology had US$6.00m of debt, an increase on none, over one year. On the flip side, it has US$2.33m in cash leading to net debt of about US$3.67m.

How Strong Is American Battery Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that American Battery Technology had liabilities of US$13.4m due within 12 months and liabilities of US$54.3k due beyond that. Offsetting this, it had US$2.33m in cash and US$671.0k in receivables that were due within 12 months. So its liabilities total US$10.4m more than the combination of its cash and short-term receivables.

Given American Battery Technology has a market capitalization of US$399.1m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, American Battery Technology has a very light debt load indeed. There's no doubt that we learn most about debt from the balance sheet. But it is American Battery Technology'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.

Since American Battery Technology has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

Caveat Emptor

Importantly, American Battery Technology had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$22m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$28m of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for American Battery Technology (of which 2 shouldn't be ignored!) you should know about.

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.