Auditors Have Doubts About Biome Grow (CSE:BIO)

Unfortunately for shareholders, when Biome Grow Inc. (CSE:BIO) reported results for the period to December 2020, its auditors, Manning Elliott, expressed uncertainty about whether it can continue as a going concern. This means that, based on the financial results to that date, the company arguably should raise capital, or otherwise strengthen the balance sheet, as soon as possible.

Given its situation, it may not be in a good position to raise capital on favorable terms. So current risks on the balance sheet could have a big impact on how shareholders fare from here. The biggest concern we would have is the company's debt, since its lenders might force the company into administration if it cannot repay them.

View our latest analysis for Biome Grow

What Is Biome Grow's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Biome Grow had CA$3.66m of debt, an increase on CA$2.91m, over one year. But on the other hand it also has CA$11.3m in cash, leading to a CA$7.59m net cash position.

A Look At Biome Grow's Liabilities

The latest balance sheet data shows that Biome Grow had liabilities of CA$3.61m due within a year, and liabilities of CA$2.46m falling due after that. Offsetting these obligations, it had cash of CA$11.3m as well as receivables valued at CA$38.2k due within 12 months. So it actually has CA$5.22m more liquid assets than total liabilities.

This surplus strongly suggests that Biome Grow has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Biome Grow has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Biome Grow'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, Biome Grow reported revenue of CA$4.7m, which is a gain of 10,159%, 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!

So How Risky Is Biome Grow?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Biome Grow lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CA$1.0m and booked a CA$1.7m accounting loss. With only CA$7.59m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, Biome Grow's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. We're too cautious to want to invest in a company after an auditor has expressed doubts 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 5 warning signs for Biome Grow (3 are potentially serious!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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