Is Greenbrook TMS (TSE:GTMS) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Greenbrook TMS Inc. (TSE:GTMS) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Greenbrook TMS

What Is Greenbrook TMS's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2020 Greenbrook TMS had debt of US$3.07m, up from US$337.8k in one year. However, its balance sheet shows it holds US$9.17m in cash, so it actually has US$6.10m net cash.

How Healthy Is Greenbrook TMS' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Greenbrook TMS had liabilities of US$25.7m due within 12 months and liabilities of US$23.4m due beyond that. Offsetting these obligations, it had cash of US$9.17m as well as receivables valued at US$12.2m due within 12 months. So its liabilities total US$27.7m more than the combination of its cash and short-term receivables.

Of course, Greenbrook TMS has a market capitalization of US$168.0m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Greenbrook TMS also has more cash than debt, so we're pretty confident it can manage its debt safely. 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.

In the last year Greenbrook TMS wasn't profitable at an EBIT level, but managed to grow its revenue by 51%, to US$46m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Greenbrook TMS?

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 Greenbrook TMS had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$8.0m of cash and made a loss of US$28m. With only US$6.10m on the balance sheet, it would appear that its going to need to raise capital again 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. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. To that end, you should learn about the 3 warning signs we've spotted with Greenbrook TMS (including 1 which is potentially serious) .

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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