Auditors Have Doubts About TechPrecision (NASDAQ:TPCS)

Unfortunately for shareholders, when TechPrecision Corporation (NASDAQ:TPCS) reported results for the period to March 2023, its auditors, Marcum LLP, 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 shareholders should absolutely be taking a close look at how risky the balance sheet is. Debt is always a risk factor in these cases, as creditors could be in a position to wind up the company, in the worst case scenario.

See our latest analysis for TechPrecision

How Much Debt Does TechPrecision Carry?

As you can see below, TechPrecision had US$5.97m of debt at March 2023, down from US$7.21m a year prior. However, it does have US$556.2k in cash offsetting this, leading to net debt of about US$5.41m.

How Strong Is TechPrecision's Balance Sheet?

The latest balance sheet data shows that TechPrecision had liabilities of US$9.02m due within a year, and liabilities of US$12.6m falling due after that. Offsetting this, it had US$556.2k in cash and US$11.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$9.77m.

Of course, TechPrecision has a market capitalization of US$68.6m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since TechPrecision will need earnings to service that debt. 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, TechPrecision reported revenue of US$31m, which is a gain of 41%, 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

Despite the top line growth, TechPrecision still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$1.1m 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. We would feel better if it turned its trailing twelve month loss of US$979k into a profit. So to be blunt we do think it is risky. 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. To that end, you should learn about the 2 warning signs we've spotted with TechPrecision (including 1 which is significant) .

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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.