While small-cap stocks, such as Everspin Technologies, Inc. (NASDAQ:MRAM) with its market cap of US$141m, 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 MRAM is not presently profitable, it’s crucial to assess the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, this is just a partial view of the stock, and I suggest you dig deeper yourself into MRAM here.
Does MRAM Produce Much Cash Relative To Its Debt?
MRAM's debt level has been constant at around US$12m over the previous year which accounts for long term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$23m , ready to be used for running the business. 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 MRAM’s operating efficiency ratios such as ROA here.
Does MRAM’s liquid assets cover its short-term commitments?
With current liabilities at US$14m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.99x. The current ratio is calculated by dividing current assets by current liabilities. For Semiconductor companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is MRAM’s debt level acceptable?
With a debt-to-equity ratio of 50%, MRAM can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since MRAM is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
MRAM’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. Since there is also no concerns around MRAM's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure MRAM has company-specific issues impacting its capital structure decisions. I recommend you continue to research Everspin Technologies to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MRAM’s future growth? Take a look at our free research report of analyst consensus for MRAM’s outlook.
- Historical Performance: What has MRAM'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.
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