Is African Rainbow Minerals (JSE:ARI) A Risky Investment?

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. As with many other companies African Rainbow Minerals Limited (JSE:ARI) makes use of debt. But the real question is whether this debt is making the company risky.

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 African Rainbow Minerals Carry?

The image below, which you can click on for greater detail, shows that at June 2025 African Rainbow Minerals had debt of R1.91b, up from R1.02b in one year. However, its balance sheet shows it holds R9.09b in cash, so it actually has R7.18b net cash.

A Look At African Rainbow Minerals' Liabilities

We can see from the most recent balance sheet that African Rainbow Minerals had liabilities of R4.52b falling due within a year, and liabilities of R9.68b due beyond that. Offsetting this, it had R9.09b in cash and R5.52b in receivables that were due within 12 months. So it can boast R406.0m more liquid assets than total liabilities.

This state of affairs indicates that African Rainbow Minerals' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the R36.2b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, African Rainbow Minerals 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 African Rainbow Minerals'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.

See our latest analysis for African Rainbow Minerals

In the last year African Rainbow Minerals wasn't profitable at an EBIT level, but managed to grow its revenue by 2.1%, to R12b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is African Rainbow Minerals?

Although African Rainbow Minerals had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of R330m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. There's no doubt that we learn most about debt from the balance sheet. 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 African Rainbow Minerals 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.