Auditors Are Concerned About LiveOne (NASDAQ:LVO)

The harsh reality for LiveOne, Inc. (NASDAQ:LVO) shareholders is that its auditors, Macias Gini & O’Connell LLP, expressed doubts about its ability to continue as a going concern, in its reported results to March 2023. 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 current risks on the balance sheet could have a big impact on how shareholders fare from here. 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.

View our latest analysis for LiveOne

What Is LiveOne's Debt?

You can click the graphic below for the historical numbers, but it shows that LiveOne had US$11.9m of debt in March 2023, down from US$26.7m, one year before. However, because it has a cash reserve of US$8.41m, its net debt is less, at about US$3.48m.

A Look At LiveOne's Liabilities

According to the last reported balance sheet, LiveOne had liabilities of US$44.5m due within 12 months, and liabilities of US$17.6m due beyond 12 months. On the other hand, it had cash of US$8.41m and US$13.7m worth of receivables due within a year. So it has liabilities totalling US$40.0m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since LiveOne has a market capitalization of US$154.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 LiveOne's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year LiveOne had a loss before interest and tax, and actually shrunk its revenue by 15%, to US$100m. We would much prefer see growth.

Caveat Emptor

Not only did LiveOne's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost US$828k 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 US$6.3m of cash over the last year. So to be blunt we 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 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. Be aware that LiveOne is showing 2 warning signs in our investment analysis , you should know about...

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. 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.