While small-cap stocks, such as MJardin Group, Inc. (CNSX:MJAR) with its market cap of CA$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. Given that MJAR is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into MJAR here.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
MJAR’s Debt (And Cash Flows)
MJAR's debt levels surged from CA$53m to CA$144m over the last 12 months , which accounts for long term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$30m to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of MJAR’s operating efficiency ratios such as ROA here.
Does MJAR’s liquid assets cover its short-term commitments?
Looking at MJAR’s CA$158m in current liabilities, it seems that the business may not be able to easily meet these obligations given the level of current assets of CA$47m, with a current ratio of 0.3x. The current ratio is the number you get when you divide current assets by current liabilities.
Is MJAR’s debt level acceptable?
With debt reaching 89% of equity, MJAR may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since MJAR 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.
Although MJAR’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I'm sure MJAR has company-specific issues impacting its capital structure decisions. You should continue to research MJardin Group to get a better picture of the stock by looking at:
- Valuation: What is MJAR 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 MJAR is currently mispriced by the market.
- Historical Performance: What has MJAR'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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.