Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that Atlas Lithium Corporation (NASDAQ:ATLX) does use debt in its business. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Atlas Lithium Carry?

The image below, which you can click on for greater detail, shows that at December 2023 Atlas Lithium had debt of US$9.77m, up from US$21.5k in one year. However, its balance sheet shows it holds US$29.5m in cash, so it actually has US$19.8m net cash.

How Strong Is Atlas Lithium's Balance Sheet?

According to the last reported balance sheet, Atlas Lithium had liabilities of US$5.67m due within 12 months, and liabilities of US$28.7m due beyond 12 months. On the other hand, it had cash of US$29.5m and US$50.8k worth of receivables due within a year. So its liabilities total US$4.77m more than the combination of its cash and short-term receivables.

Of course, Atlas Lithium has a market capitalization of US$217.3m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 ultimately the future profitability of the business will decide if Atlas Lithium can strengthen its balance sheet over time. 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?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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$12m and booked a US$41m accounting loss. But at least it has US$19.8m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example Atlas Lithium has 5 warning signs (and 3 which can't be ignored) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.