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 can see that Mission Ready Solutions Inc. (CVE:MRS) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Mission Ready Solutions

How Much Debt Does Mission Ready Solutions Carry?

You can click the graphic below for the historical numbers, but it shows that Mission Ready Solutions had CA$4.86m of debt in December 2020, down from CA$10.7m, one year before. On the flip side, it has CA$1.63m in cash leading to net debt of about CA$3.23m.

debt-equity-history-analysis
TSXV:MRS Debt to Equity History May 20th 2021

A Look At Mission Ready Solutions' Liabilities

We can see from the most recent balance sheet that Mission Ready Solutions had liabilities of CA$26.0m falling due within a year, and liabilities of CA$989.2k due beyond that. Offsetting this, it had CA$1.63m in cash and CA$6.57m in receivables that were due within 12 months. So it has liabilities totalling CA$18.8m more than its cash and near-term receivables, combined.

Mission Ready Solutions has a market capitalization of CA$84.0m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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.

In the last year Mission Ready Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 392%, to CA$105m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

While we can certainly appreciate Mission Ready Solutions's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at CA$924k. 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. We would feel better if it turned its trailing twelve month loss of CA$1.3m into a profit. In the meantime, we consider the stock very risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Mission Ready Solutions (of which 1 is significant!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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