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 2021. It is therefore fair to assume that, based on those financials, the company should strengthen its balance sheet in the short term, perhaps by issuing shares.

If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. So shareholders should absolutely be taking a close look at how risky the balance sheet is. Debt is always a risk factor in these cases, as creditors could be in a position to wind up the company, in the worst case scenario.

View our latest analysis for Mesoblast

How Much Debt Does Mesoblast Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 Mesoblast had US$94.2m of debt, an increase on US$89.5m, over one year. But on the other hand it also has US$136.9m in cash, leading to a US$42.6m net cash position.

How Healthy Is Mesoblast's Balance Sheet?

The latest balance sheet data shows that Mesoblast had liabilities of US$94.3m due within a year, and liabilities of US$69.0m falling due after that. Offsetting this, it had US$136.9m in cash and US$2.65m in receivables that were due within 12 months. So it has liabilities totalling US$23.8m more than its cash and near-term receivables, combined.

Given Mesoblast has a market capitalization of US$824.9m, 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. While it does have liabilities worth noting, Mesoblast also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 made a loss at the EBIT level, and saw its revenue drop to US$7.5m, which is a fall of 77%. That makes us nervous, to say the least.

So How Risky Is Mesoblast?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Mesoblast had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$108m of cash and made a loss of US$99m. However, it has net cash of US$42.6m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 we find it more comfortable to invest in companies that always keep the balance sheet reasonably strong. 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 instance, we've identified 2 warning signs for Mesoblast that you should be aware of.

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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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