Investors are always looking for growth in small-cap stocks like MagneGas Corporation (NASDAQ:MNGA), with a market cap of US$8.42M. However, an important fact which most ignore is: how financially healthy is the business? Since MNGA 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 MNGA here.
How does MNGA’s operating cash flow stack up against its debt?
MNGA has built up its total debt levels in the last twelve months, from US$629.65K to US$1.16M , which is made up of current and long term debt. With this rise in debt, MNGA’s cash and short-term investments stands at US$586.82K for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 MNGA’s operating efficiency ratios such as ROA here.
Can MNGA meet its short-term obligations with the cash in hand?
Looking at MNGA’s most recent US$3.25M liabilities, the company has not been able to meet these commitments with a current assets level of US$1.91M, leading to a 0.59x current account ratio. which is under the appropriate industry ratio of 3x.
Can MNGA service its debt comfortably?
With a debt-to-equity ratio of 6.22%, MNGA’s debt level is relatively low. MNGA is not taking on too much debt commitment, which may be constraining for future growth. MNGA’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.
MNGA’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, 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 MNGA has company-specific issues impacting its capital structure decisions. I recommend you continue to research MagneGas to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MNGA’s future growth? Take a look at our free research report of analyst consensus for MNGA’s outlook.
- Valuation: What is MNGA 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 MNGA 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.