Auditors Are Concerned About Greenbrook TMS (TSE:GTMS)

Unfortunately for shareholders, when Greenbrook TMS Inc. (TSE:GTMS) reported results for the period to December 2020, its auditors, KPMG LLP - Klynveld Peat Marwick Goerdeler, expressed uncertainty about whether it can continue as a going concern. 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.

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 big consideration is whether it can repay its debt, since in the worst case scenario, creditors could force the company to bankruptcy.

Check out our latest analysis for Greenbrook TMS

What Is Greenbrook TMS's Debt?

The image below, which you can click on for greater detail, shows that at December 2020 Greenbrook TMS had debt of US$16.3m, up from US$321.2k in one year. However, its balance sheet shows it holds US$18.8m in cash, so it actually has US$2.52m net cash.

How Strong Is Greenbrook TMS' Balance Sheet?

We can see from the most recent balance sheet that Greenbrook TMS had liabilities of US$27.7m falling due within a year, and liabilities of US$38.0m due beyond that. Offsetting this, it had US$18.8m in cash and US$10.7m in receivables that were due within 12 months. So its liabilities total US$36.2m more than the combination of its cash and short-term receivables.

Since publicly traded Greenbrook TMS shares are worth a total of US$187.2m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Greenbrook TMS boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Greenbrook TMS's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Greenbrook TMS reported revenue of US$43m, which is a gain of 21%, 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 Greenbrook TMS?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Greenbrook TMS had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$7.9m and booked a US$30m accounting loss. Given it only has net cash of US$2.52m, the company may need to raise more capital if it doesn't reach break-even soon. Greenbrook TMS's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Greenbrook TMS (of which 1 is a bit concerning!) you should know about.

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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