Is Amaroq Minerals (CVE:AMRQ) Weighed On By Its Debt Load?

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 note that Amaroq Minerals Ltd. (CVE:AMRQ) does have debt on its balance sheet. But is this debt a concern to shareholders?

Our free stock report includes 3 warning signs investors should be aware of before investing in Amaroq Minerals. Read for free now.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 Amaroq Minerals's Debt?

The image below, which you can click on for greater detail, shows that Amaroq Minerals had debt of CA$28.6m at the end of December 2024, a reduction from CA$35.7m over a year. However, its balance sheet shows it holds CA$45.2m in cash, so it actually has CA$16.6m net cash.

A Look At Amaroq Minerals' Liabilities

According to the last reported balance sheet, Amaroq Minerals had liabilities of CA$47.0m due within 12 months, and liabilities of CA$7.85m due beyond 12 months. Offsetting these obligations, it had cash of CA$45.2m as well as receivables valued at CA$277.7k due within 12 months. So its liabilities total CA$9.35m more than the combination of its cash and short-term receivables.

Having regard to Amaroq Minerals' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CA$633.8m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Amaroq Minerals 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 ultimately the future profitability of the business will decide if Amaroq Minerals can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Amaroq Minerals

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

So How Risky Is Amaroq Minerals?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Amaroq Minerals 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 CA$117m and booked a CA$23m accounting loss. Given it only has net cash of CA$16.6m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Amaroq Minerals you should be aware of, and 1 of them shouldn't be ignored.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.