We Think Mobile Tornado Group (LON:MBT) Has A Fair Chunk Of Debt
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Mobile Tornado Group plc (LON:MBT) does carry debt. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Mobile Tornado Group
How Much Debt Does Mobile Tornado Group Carry?
The image below, which you can click on for greater detail, shows that Mobile Tornado Group had debt of UK£8.42m at the end of December 2018, a reduction from UK£10.5m over a year. However, it also had UK£354.0k in cash, and so its net debt is UK£8.07m.
A Look At Mobile Tornado Group's Liabilities
The latest balance sheet data shows that Mobile Tornado Group had liabilities of UK£7.35m due within a year, and liabilities of UK£7.88m falling due after that. Offsetting these obligations, it had cash of UK£354.0k as well as receivables valued at UK£1.44m due within 12 months. So its liabilities total UK£13.4m more than the combination of its cash and short-term receivables.
This is a mountain of leverage relative to its market capitalization of UK£18.0m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Mobile Tornado Group'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.
In the last year Mobile Tornado Group managed to grow its revenue by 18%, to UK£3.0m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
Caveat Emptor
Importantly, Mobile Tornado Group had negative earnings before interest and tax (EBIT), over the last year. To be specific the EBIT loss came in at UK£1.1m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through UK£1.5m of cash over the last year. So in short it's a really risky stock. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Mobile Tornado Group's profit, revenue, and operating cashflow have changed over the last few years.
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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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.
