Auditors Are Concerned About Mesoblast (ASX:MSB)

The harsh reality for Mesoblast Limited (ASX:MSB) shareholders is that its auditors, PricewaterhouseCoopers LLP, expressed doubts about its ability to continue as a going concern, in its reported results to June 2020. Thus we can say that, based on the results to that date, the company should raise capital or otherwise raise cash, without much delay.

Given its situation, it may not be in a good position to raise capital on favorable terms. So shareholders should absolutely be taking a close look at how risky the balance sheet is. The biggest concern we would have is the company's debt, since its lenders might force the company into administration if it cannot repay them.

View our latest analysis for Mesoblast

How Much Debt Does Mesoblast Carry?

As you can see below, at the end of June 2020, Mesoblast had US$89.5m of debt, up from US$81.3m a year ago. Click the image for more detail. But it also has US$129.3m in cash to offset that, meaning it has US$39.9m net cash.

A Look At Mesoblast's Liabilities

Zooming in on the latest balance sheet data, we can see that Mesoblast had liabilities of US$90.1m due within 12 months and liabilities of US$94.1m due beyond that. On the other hand, it had cash of US$129.3m and US$851.0k worth of receivables due within a year. So it has liabilities totalling US$54.1m more than its cash and near-term receivables, combined.

Since publicly traded Mesoblast shares are worth a total of US$2.23b, it seems unlikely that this level of liabilities would be a major 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, Mesoblast boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Mesoblast can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Mesoblast reported revenue of US$32m, which is a gain of 92%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Mesoblast?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Mesoblast lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$58.6m of cash and made a loss of US$77.9m. But at least it has US$39.9m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Mesoblast may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. We prefer to avoid a company after its auditor has expressed any uncertainty 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Mesoblast , and understanding them should be part of your investment process.

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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