Is Arianne Phosphate (CVE:DAN) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Arianne Phosphate Inc. (CVE:DAN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Arianne Phosphate's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Arianne Phosphate had debt of CA$38.5m, up from CA$26.6m in one year. However, it also had CA$3.17m in cash, and so its net debt is CA$35.3m.

How Strong Is Arianne Phosphate's Balance Sheet?

The latest balance sheet data shows that Arianne Phosphate had liabilities of CA$38.8m due within a year, and liabilities of CA$3.77m falling due after that. Offsetting this, it had CA$3.17m in cash and CA$311.6k in receivables that were due within 12 months. So its liabilities total CA$39.1m more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's CA$35.3m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Arianne Phosphate's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Arianne Phosphate

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

Caveat Emptor

Importantly, Arianne Phosphate had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CA$2.2m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through CA$2.5m in negative free cash flow over the last year. That means it's on the risky side of things. 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. Case in point: We've spotted 3 warning signs for Arianne Phosphate you should be aware of, and 2 of them are significant.

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.

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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.