Auditors Have Doubts About Nanoco Group (LON:NANO)

Unfortunately for shareholders, when Nanoco Group plc (LON:NANO) reported results for the period to July 2022, its auditors, Mazars, 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 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.

Check out the opportunities and risks within the GB Semiconductor industry.

How Much Debt Does Nanoco Group Carry?

As you can see below, at the end of July 2022, Nanoco Group had UK£3.92m of debt, up from UK£3.49m a year ago. Click the image for more detail. But on the other hand it also has UK£6.76m in cash, leading to a UK£2.84m net cash position.

How Strong Is Nanoco Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nanoco Group had liabilities of UK£2.40m due within 12 months and liabilities of UK£4.02m due beyond that. On the other hand, it had cash of UK£6.76m and UK£1.80m worth of receivables due within a year. So it actually has UK£2.15m more liquid assets than total liabilities.

This state of affairs indicates that Nanoco Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the UK£109.9m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Nanoco Group boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Nanoco 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, Nanoco Group reported revenue of UK£2.5m, which is a gain of 18%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Nanoco Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Nanoco Group 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 UK£1.9m and booked a UK£4.7m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of UK£2.84m. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. 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 4 warning signs for Nanoco Group that you should be aware of before investing here.

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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