Auditors Have Doubts About Titan Mining (TSE:TI)

Unfortunately for shareholders, when Titan Mining Corporation (TSE:TI) reported results for the period to December 2020, its auditors, Ernst & Young LLP, 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.

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 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 Titan Mining

What Is Titan Mining's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Titan Mining had US$37.9m of debt, an increase on US$32.3m, over one year. However, it does have US$7.50m in cash offsetting this, leading to net debt of about US$30.4m.

A Look At Titan Mining's Liabilities

We can see from the most recent balance sheet that Titan Mining had liabilities of US$16.1m falling due within a year, and liabilities of US$45.1m due beyond that. Offsetting this, it had US$7.50m in cash and US$1.27m in receivables that were due within 12 months. So it has liabilities totalling US$52.5m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of US$70.6m, so it does suggest shareholders should keep an eye on Titan Mining's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. 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 Titan Mining can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Titan Mining reported revenue of US$33m, which is a gain of 2,881%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

Caveat Emptor

Despite the top line growth, Titan Mining still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$12m 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. However, it doesn't help that it burned through US$2.0m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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 5 warning signs for Titan Mining (of which 2 are a bit unpleasant!) 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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