Is Greenbrook TMS (TSE:GTMS) Weighed On By Its Debt Load?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Greenbrook TMS Inc. (TSE:GTMS) does have debt on its balance sheet. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Greenbrook TMS
How Much Debt Does Greenbrook TMS Carry?
As you can see below, at the end of September 2020, Greenbrook TMS had US$3.07m of debt, up from US$337.8k a year ago. Click the image for more detail. However, its balance sheet shows it holds US$9.17m in cash, so it actually has US$6.10m net cash.
How Strong Is Greenbrook TMS' Balance Sheet?
We can see from the most recent balance sheet that Greenbrook TMS had liabilities of US$25.7m falling due within a year, and liabilities of US$23.4m due beyond that. Offsetting this, it had US$9.17m in cash and US$12.2m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$27.7m.
Since publicly traded Greenbrook TMS shares are worth a total of US$220.6m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Greenbrook TMS also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Greenbrook TMS'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.
In the last year Greenbrook TMS wasn't profitable at an EBIT level, but managed to grow its revenue by 51%, to US$46m. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Greenbrook TMS?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Greenbrook TMS lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$8.0m and booked a US$28m accounting loss. Given it only has net cash of US$6.10m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Greenbrook TMS may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Greenbrook TMS (1 doesn't sit too well with us!) that you should be aware of before investing here.
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.
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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