Investors are always looking for growth in small-cap stocks like Etablissements Maurel & Prom SA (EPA:MAU), with a market cap of €1.09b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Oil and Gas industry, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes crucial. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into MAU here.
Does MAU produce enough cash relative to debt?
MAU’s debt levels have fallen from €736.63m to €580.29m over the last 12 months – this includes both the current and long-term debt. With this debt repayment, MAU currently has €216.91m remaining in cash and short-term investments for investing into the business. Additionally, MAU has generated cash from operations of €163.82m in the last twelve months, resulting in an operating cash to total debt ratio of 28.23%, signalling that MAU’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MAU’s case, it is able to generate 0.28x cash from its debt capital.
Can MAU pay its short-term liabilities?
At the current liabilities level of €163.48m liabilities, the company has been able to meet these commitments with a current assets level of €376.15m, leading to a 2.3x current account ratio. Generally, for Oil and Gas companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can MAU service its debt comfortably?
With a debt-to-equity ratio of 68.69%, MAU can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In MAU’s case, the ratio of 1.71x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
MAU’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for MAU’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Etablissements Maurel & Prom to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MAU’s future growth? Take a look at our free research report of analyst consensus for MAU’s outlook.
- Valuation: What is MAU worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MAU is currently mispriced by the market.
- 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.