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

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. Importantly, Atlas Lithium Corporation (NASDAQ:ATLX) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See 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 June 2024 Atlas Lithium had debt of US$9.84m, up from US$21.7k in one year. However, it does have US$32.3m in cash offsetting this, leading to net cash of US$22.4m.

How Healthy Is Atlas Lithium's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Atlas Lithium had liabilities of US$5.28m due within 12 months and liabilities of US$28.6m due beyond that. Offsetting this, it had US$32.3m in cash and US$11.0k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.63m.

Having regard to Atlas Lithium's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$158.1m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Atlas Lithium also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. 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're focused on the future you can check out this free report showing analyst profit forecasts.

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

So How Risky Is Atlas Lithium?

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 Atlas Lithium lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$49m of cash and made a loss of US$53m. With only US$22.4m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, Atlas Lithium's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 5 warning signs for Atlas Lithium you should be aware of, and 1 of them is potentially serious.

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.