Auditors Have Doubts About mCloud Technologies (CVE:MCLD)

Unfortunately for shareholders, when mCloud Technologies Corp. (CVE:MCLD) 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. Thus we can say that, based on the results to that date, the company should raise capital or otherwise raise cash, without much delay.

Given its situation, it may not be in a good position to raise capital on favorable terms. So it is suddenly extremely important to consider whether the company is taking too much risk on its balance sheet. 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 mCloud Technologies

What Is mCloud Technologies's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 mCloud Technologies had CA$39.9m of debt, an increase on CA$33.0m, over one year. However, it also had CA$1.11m in cash, and so its net debt is CA$38.8m.

How Strong Is mCloud Technologies' Balance Sheet?

According to the last reported balance sheet, mCloud Technologies had liabilities of CA$28.2m due within 12 months, and liabilities of CA$37.6m due beyond 12 months. Offsetting this, it had CA$1.11m in cash and CA$12.8m in receivables that were due within 12 months. So its liabilities total CA$52.0m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of CA$71.5m. 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 it is future earnings, more than anything, that will determine mCloud Technologies'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, mCloud Technologies reported revenue of CA$27m, which is a gain of 46%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate mCloud Technologies's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost a very considerable CA$30m at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CA$27m of cash over the last year. So in short it's a really risky stock. 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 we find it more comfortable to invest in companies that always keep the balance sheet reasonably strong. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 5 warning signs for mCloud Technologies (3 make us uncomfortable!) that you should be aware of before investing here.

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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