Yahoo Finance MYCELX Technologies (LON:MYX) Has Debt But No Earnings; Should You Worry?
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, MYCELX Technologies Corporation (LON:MYX) does carry debt. But should shareholders be worried about its use of debt?
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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for MYCELX Technologies
How Much Debt Does MYCELX Technologies Carry?
As you can see below, at the end of December 2020, MYCELX Technologies had US$2.64m of debt, up from US$1.74m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$3.29m in cash, so it actually has US$652.0k net cash.
How Strong Is MYCELX Technologies' Balance Sheet?
According to the last reported balance sheet, MYCELX Technologies had liabilities of US$3.52m due within 12 months, and liabilities of US$1.82m due beyond 12 months. On the other hand, it had cash of US$3.29m and US$1.48m worth of receivables due within a year. So its liabilities total US$569.0k more than the combination of its cash and short-term receivables.
Of course, MYCELX Technologies has a market capitalization of US$15.3m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, MYCELX Technologies 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 you can't view debt in total isolation; since MYCELX Technologies will need earnings to service that debt. 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.
In the last year MYCELX Technologies had a loss before interest and tax, and actually shrunk its revenue by 40%, to US$7.1m. That makes us nervous, to say the least.
So How Risky Is MYCELX Technologies?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months MYCELX Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$1.7m of cash and made a loss of US$6.1m. With only US$652.0k on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example, we've discovered 3 warning signs for MYCELX Technologies (1 is concerning!) that you should be aware of before investing here.
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.
This article by Simply Wall St is general in nature. 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.
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