We Think Australis Oil & Gas (ASX:ATS) Has A Fair Chunk Of Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Australis Oil & Gas Limited (ASX:ATS) does use debt in its business. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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

How Much Debt Does Australis Oil & Gas Carry?

You can click the graphic below for the historical numbers, but it shows that Australis Oil & Gas had US$5.85m of debt in June 2025, down from US$11.3m, one year before. However, it also had US$4.00m in cash, and so its net debt is US$1.86m.

How Strong Is Australis Oil & Gas' Balance Sheet?

We can see from the most recent balance sheet that Australis Oil & Gas had liabilities of US$12.0m falling due within a year, and liabilities of US$2.70m due beyond that. Offsetting these obligations, it had cash of US$4.00m as well as receivables valued at US$2.34m due within 12 months. So it has liabilities totalling US$8.33m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of US$12.5m, so it does suggest shareholders should keep an eye on Australis Oil & Gas' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Australis Oil & Gas will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for Australis Oil & Gas

Over 12 months, Australis Oil & Gas made a loss at the EBIT level, and saw its revenue drop to US$16m, which is a fall of 18%. That's not what we would hope to see.

Caveat Emptor

Not only did Australis Oil & Gas's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable US$5.7m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$6.1m. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Australis Oil & Gas 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.