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Auditors Are Concerned About Bass Metals (ASX:BSM)

Simply Wall St

Unfortunately for shareholders, when Bass Metals Limited (ASX:BSM) reported results for the period to June 2019, its auditors, Grant Thornton, expressed uncertainty about whether it can continue as a going concern. Thus we can say that, based on the results to that date, the company should raise capital or otherwise raise cash, without much delay.

If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. So it is suddenly extremely important to consider whether the company is taking too much risk on its balance sheet. The big consideration is whether it can repay its debt, since in the worst case scenario, creditors could force the company to bankruptcy.

View our latest analysis for Bass Metals

How Much Debt Does Bass Metals Carry?

The image below, which you can click on for greater detail, shows that at June 2019 Bass Metals had debt of AU$1.53m, up from AU$18.3k in one year. But on the other hand it also has AU$1.56m in cash, leading to a AU$26.6k net cash position.

ASX:BSM Historical Debt, September 28th 2019

A Look At Bass Metals's Liabilities

Zooming in on the latest balance sheet data, we can see that Bass Metals had liabilities of AU$2.23m due within 12 months and liabilities of AU$2.24m due beyond that. Offsetting these obligations, it had cash of AU$1.56m as well as receivables valued at AU$789.2k due within 12 months. So its liabilities total AU$2.11m more than the combination of its cash and short-term receivables.

Given Bass Metals has a market capitalization of AU$22.5m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Bass Metals 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 Bass Metals's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Bass Metals wasn't profitable at an EBIT level, but managed to grow its revenue by3326%, to AU$1.3m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Bass Metals?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Bass Metals had negative earnings before interest and tax (EBIT), over the last year. And over the same period it saw negative free cash outflow of AU$8.8m and booked a AU$6.9m accounting loss. Given it only has net cash of AU$26.6k, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, Bass Metals's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. We're too cautious to want to invest in a company after an auditor has expressed doubts about its ability to continue as a going concern. That's because companies should always make sure the auditor has confidence that the company will continue as a going concern, in our view. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Bass Metals insider transactions.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.