Health Check: How Cautious Does IM Cannabis (CSE: IMCC) Use Debt?
Legendary fund manager Li Lu (whom Charlie Munger supported) once said, “The biggest risk in investing is not price volatility, but the possibility that you will suffer a permanent loss of capital.” So it can be obvious that you need to consider debt, when you think about how risky a given stock is, because too much debt can sink a business. We can see that IM Cannabis Corp. (CSE: IMCC) uses debt in its activities. But does this debt worry shareholders?
When is Debt a Problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, many companies use debt to finance their growth without negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
See our latest review for IM Cannabis
What is IM Cannabis net debt?
You can click on the graph below for historical numbers, but it shows that as of September 2021, IM Cannabis was in debt of C $ 6.18 million, an increase from none, year over year. But on the other hand, he also has CA $ 18.1 million in cash, which leads to a net cash position of CA $ 12.0 million.
How healthy is IM Cannabis’ track record?
We can see from the most recent balance sheet that IM Cannabis had liabilities of C $ 33.7 million maturing within one year and liabilities of C $ 30.7 million maturing within one year. of the. In return, he had C $ 18.1 million in cash and C $ 29.2 million in receivables due within 12 months. Its liabilities therefore total C $ 17.1 million more than the combination of its cash and short-term receivables.
Considering that the listed IM Cannabis shares are worth a total of C $ 315.0 million, it seems unlikely that this level of liabilities is a major threat. Having said that, it is clear that we must continue to monitor his record lest it get worse. Despite its notable liabilities, IM Cannabis has crisp cash flow, so it’s fair to say that it doesn’t have a lot of debt! When analyzing debt levels, the balance sheet is the obvious place to start. But it is future profits, more than anything, that will determine IM Cannabis’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Over 12 months, IM Cannabis reported sales of C $ 39 million, a gain of 191%, although it reported no profit before interest and taxes. So there is no doubt that shareholders encourage growth
So how risky is IM cannabis?
We are convinced that loss-making companies are, in general, riskier than profitable ones. And we note that IM Cannabis has recorded a loss of profit before interest and taxes (EBIT) over the past year. And during the same period, it recorded negative free cash outflows of C $ 44 million and a book loss of C $ 24 million. But at least he has C $ 12.0 million on the balance sheet to spend on short-term growth. The good news for shareholders is that IM Cannabis is experiencing tremendous revenue growth, so there is a very good chance that it will be able to increase its free cash flow in the years to come. High growth nonprofits can be risky, but they can also offer great rewards. When analyzing debt levels, the balance sheet is the obvious place to start. But at the end of the day, every business can contain risks that exist off the balance sheet. For example, IM Cannabis has 4 warning signs (and 1 which doesn’t suit us very well) we think you should be aware of.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow net-growth stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.