When Stuart Olson Inc. (TSE:SOX) reported its results to December 2019 its auditors, Deloitte & Touche LLP could not be sure that it would be able to continue as a going concern in the next year. 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.
Since the company probably needs cash fairly quickly, it may be in a position where it has to accept whatever terms it can get. So current risks on the balance sheet could have a big impact on how shareholders fare from here. 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.
How Much Debt Does Stuart Olson Carry?
As you can see below, Stuart Olson had CA$119.9m of debt, at December 2019, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has CA$8.21m in cash leading to net debt of about CA$111.7m.
A Look At Stuart Olson’s Liabilities
The latest balance sheet data shows that Stuart Olson had liabilities of CA$262.8m due within a year, and liabilities of CA$187.3m falling due after that. Offsetting this, it had CA$8.21m in cash and CA$294.7m in receivables that were due within 12 months. So it has liabilities totalling CA$147.2m more than its cash and near-term receivables, combined.
The deficiency here weighs heavily on the CA$21.4m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Stuart Olson would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Stuart Olson can strengthen its balance sheet over time. So if you’re focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Stuart Olson made a loss at the EBIT level, and saw its revenue drop to CA$929m, which is a fall of 3.9%. We would much prefer see growth.
Importantly, Stuart Olson had negative earnings before interest and tax (EBIT), over the last year. Indeed, it lost a very considerable CA$5.1m at the EBIT level. Reflecting on this and the significant total liabilities, it’s hard to know what to say about the stock because of our intense dis-affinity for it. Like every long-shot we’re sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it burned through CA$6.7m in the last year. So we consider this a high risk stock, and we’re worried its share price could sink faster than than a dingy with a great white shark attacking it. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Take risks, for example – Stuart Olson has 5 warning signs (and 2 which are a bit unpleasant) we think you should know about.
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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