Does Atlas Lithium (NASDAQ:ATLX) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Atlas Lithium Corporation (NASDAQ:ATLX) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Atlas Lithium

What Is Atlas Lithium's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Atlas Lithium had debt of US$9.96m, up from US$21.6k in one year. However, its balance sheet shows it holds US$17.5m in cash, so it actually has US$7.57m net cash.

How Strong Is Atlas Lithium's Balance Sheet?

According to the last reported balance sheet, Atlas Lithium had liabilities of US$6.43m due within 12 months, and liabilities of US$28.7m due beyond 12 months. On the other hand, it had cash of US$17.5m and US$11.0k worth of receivables due within a year. So its liabilities total US$17.6m more than the combination of its cash and short-term receivables.

Given Atlas Lithium has a market capitalization of US$231.5m, 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. Despite its noteworthy liabilities, Atlas Lithium boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Atlas Lithium'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.

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

So How Risky Is Atlas Lithium?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Atlas Lithium had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$19m and booked a US$50m accounting loss. Given it only has net cash of US$7.57m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, Atlas Lithium's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. Be aware that Atlas Lithium is showing 5 warning signs in our investment analysis , and 2 of those are significant...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.