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.' 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 can see that Atlas Lithium Corporation (NASDAQ:ATLX) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.

View our latest analysis for Atlas Lithium

How Much Debt Does Atlas Lithium Carry?

The chart below, which you can click on for greater detail, shows that Atlas Lithium had US$9.89m in debt in December 2024; about the same as the year before. But it also has US$15.5m in cash to offset that, meaning it has US$5.65m net cash.

A Look At Atlas Lithium's Liabilities

According to the last reported balance sheet, Atlas Lithium had liabilities of US$5.69m due within 12 months, and liabilities of US$30.2m due beyond 12 months. On the other hand, it had cash of US$15.5m and US$77.1k worth of receivables due within a year. So it has liabilities totalling US$20.2m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Atlas Lithium is worth US$92.5m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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. When analysing debt levels, the balance sheet is the obvious place to start. 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.

While it hasn't made a profit, at least Atlas Lithium booked its first revenue as a publicly listed company, in the last twelve months.

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. And over the same period it saw negative free cash outflow of US$46m and booked a US$42m accounting loss. With only US$5.65m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. We've identified 6 warning signs with Atlas Lithium (at least 4 which don't sit too well with us) , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.