Stock Analysis

Is Mission Ready Solutions (CVE:MRS) A Risky Investment?

TSXV:MRS.H
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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 Mission Ready Solutions Inc. (CVE:MRS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Mission Ready Solutions

What Is Mission Ready Solutions's Debt?

The image below, which you can click on for greater detail, shows that Mission Ready Solutions had debt of CA$9.12m at the end of September 2020, a reduction from CA$11.1m over a year. However, it does have CA$5.27m in cash offsetting this, leading to net debt of about CA$3.85m.

debt-equity-history-analysis
TSXV:MRS Debt to Equity History January 8th 2021

How Strong Is Mission Ready Solutions' Balance Sheet?

We can see from the most recent balance sheet that Mission Ready Solutions had liabilities of CA$26.7m falling due within a year, and liabilities of CA$980.7k due beyond that. Offsetting these obligations, it had cash of CA$5.27m as well as receivables valued at CA$3.00m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$19.4m.

This deficit isn't so bad because Mission Ready Solutions is worth CA$35.0m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Mission Ready Solutions'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.

Over 12 months, Mission Ready Solutions reported revenue of CA$76m, which is a gain of 793%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

Despite the top line growth, Mission Ready Solutions still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$3.8m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of CA$5.0m into a profit. In the meantime, we consider the stock very risky. 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. For example, we've discovered 3 warning signs for Mission Ready Solutions (1 is a bit concerning!) that you should be aware of before investing here.

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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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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