Joint Stock Company “World Trade Center Moscow” (MISX:WTCM), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is WTCM will have to follow strict debt obligations which will reduce its financial flexibility. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean WTCM has outstanding financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status. View our latest analysis for World Trade Center Moscow
Is financial flexibility worth the lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. But the downside of having debt in a company’s balance sheet is the debtholder’s higher claim on its assets in the case of liquidation, as well as stricter capital management requirements. The lack of debt on WTCM’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if WTCM is a high-growth company. WTCM’s revenue growth over the past year is a single-digit 4.78% which is relatively low for a small-cap company. More capital can help the business grow faster. If WTCM is not expecting exceptional future growth, then the decision to avoid may cost shareholders in the long term.
Can WTCM pay its short-term liabilities?
Looking at WTCM’s most recent RUРУБ1.40B liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.91x. For Real Estate companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Since WTCM is a low-growth stock in terms of its revenues, not having any low-cost debt funding may not be optimal for the business. As shareholders, you should try and determine whether this strategy is justified for WTCM, and whether the company needs financial flexibility at this point in time. Keep in mind I haven’t considered other factors such as how WTCM has been performing in the past. I suggest you continue to research World Trade Center Moscow to get a more holistic view of the stock by looking at:
- Valuation: What is WTCM 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 WTCM is currently mispriced by the market.
- Historical Performance: What has WTCM’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.