While small-cap stocks, such as Command Security Corporation (AMEX:MOC) with its market cap of US$15.97M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since MOC is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into MOC here.
Does MOC generate enough cash through operations?
MOC’s debt levels surged from US$7.01M to US$12.23M over the last 12 months , which is mainly comprised of near term debt. With this growth in debt, MOC’s cash and short-term investments stands at US$1.04M , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of MOC’s operating efficiency ratios such as ROA here.
Can MOC meet its short-term obligations with the cash in hand?
Looking at MOC’s most recent US$25.53M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$36.01M, with a current ratio of 1.41x. Usually, for Commercial Services companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does MOC face the risk of succumbing to its debt-load?
MOC is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since MOC is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
MOC’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for MOC’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Command Security to get a better picture of the stock by looking at:
- Historical Performance: What has MOC’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.