Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Lifezone Metals Limited (NYSE:LZM) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

What Is Lifezone Metals's Debt?

The image below, which you can click on for greater detail, shows that at June 2024 Lifezone Metals had debt of US$24.9m, up from none in one year. However, its balance sheet shows it holds US$63.5m in cash, so it actually has US$38.6m net cash.

How Strong Is Lifezone Metals' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Lifezone Metals had liabilities of US$61.6m due within 12 months and liabilities of US$926.6k due beyond that. On the other hand, it had cash of US$63.5m and US$1.74m worth of receivables due within a year. So it actually has US$2.74m more liquid assets than total liabilities.

This state of affairs indicates that Lifezone Metals' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$543.5m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Lifezone Metals boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Lifezone Metals'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.

Over 12 months, Lifezone Metals made a loss at the EBIT level, and saw its revenue drop to US$1.0m, which is a fall of 56%. That makes us nervous, to say the least.

So How Risky Is Lifezone Metals?

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 Lifezone Metals lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$92m of cash and made a loss of US$364m. With only US$38.6m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Lifezone Metals you should know about.

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.