Is MYCELX Technologies (LON:MYX) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, MYCELX Technologies Corporation (LON:MYX) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

View our latest analysis for MYCELX Technologies

What Is MYCELX Technologies's Debt?

The image below, which you can click on for greater detail, shows that at December 2020 MYCELX Technologies had debt of US$2.64m, up from US$1.74m in one year. But it also has US$3.29m in cash to offset that, meaning it has US$652.0k net cash.

How Strong Is MYCELX Technologies' Balance Sheet?

According to the last reported balance sheet, MYCELX Technologies had liabilities of US$3.52m due within 12 months, and liabilities of US$1.82m due beyond 12 months. Offsetting this, it had US$3.29m in cash and US$1.48m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$569.0k.

Since publicly traded MYCELX Technologies shares are worth a total of US$15.3m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, MYCELX Technologies 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 you can't view debt in total isolation; since MYCELX Technologies will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, MYCELX Technologies made a loss at the EBIT level, and saw its revenue drop to US$7.1m, which is a fall of 40%. That makes us nervous, to say the least.

So How Risky Is MYCELX Technologies?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that MYCELX Technologies had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$1.7m and booked a US$6.1m accounting loss. With only US$652.0k on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 MYCELX Technologies you should be aware of, and 1 of them makes us a bit uncomfortable.

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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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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