Auditors Have Doubts About SLM Solutions Group (ETR:AM3D)

Unfortunately for shareholders, when SLM Solutions Group AG (ETR:AM3D) 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.

If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. 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.

See our latest analysis for SLM Solutions Group

What Is SLM Solutions Group's Net Debt?

As you can see below, at the end of December 2020, SLM Solutions Group had €77.1m of debt, up from €66.2m a year ago. Click the image for more detail. On the flip side, it has €18.9m in cash leading to net debt of about €58.3m.

A Look At SLM Solutions Group's Liabilities

According to the last reported balance sheet, SLM Solutions Group had liabilities of €20.6m due within 12 months, and liabilities of €89.9m due beyond 12 months. Offsetting this, it had €18.9m in cash and €17.2m in receivables that were due within 12 months. So its liabilities total €74.4m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because SLM Solutions Group is worth €356.0m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 SLM Solutions Group'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, SLM Solutions Group reported revenue of €67m, which is a gain of 27%, 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 SLM Solutions Group's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at €25m. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled €15m in negative free cash flow over the last twelve months. 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 we find it more comfortable to invest in companies that always keep the balance sheet reasonably strong. 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. Case in point: We've spotted 3 warning signs for SLM Solutions Group you should be aware of, and 1 of them can't be ignored.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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