Is Magnetite Mines Limited (ASX:MGT) A Financially Sound Company?
Investors are always looking for growth in small-cap stocks like Magnetite Mines Limited (ASX:MGT), with a market cap of A$21.85M. However, an important fact which most ignore is: how financially healthy is the business? Since MGT is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I suggest you dig deeper yourself into MGT here.
Does MGT generate enough cash through operations?
MGT has sustained its debt level by about A$2.5M over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at A$2.2M for investing into the business. However, 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 MGT’s operating efficiency ratios such as ROA here.
Can MGT pay its short-term liabilities?
At the current liabilities level of A$0.9M liabilities, the company has been able to meet these obligations given the level of current assets of A$2.5M, with a current ratio of 2.82x. Usually, for metals and mining companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can MGT service its debt comfortably?
MGT’s level of debt is appropriate relative to its total equity, at 31.38%. This range is considered safe as MGT is not taking on too much debt obligation, which may be constraining for future growth. MGT’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? Although MGT’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may be different. You should always be researching market expectations for MGT’s future growth on our free analysis platform.
Are you a potential investor? Magnetite Mines currently has financial flexibility to ramp up growth in the future. Moreover, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more confidence in the stock, you need to also examine the company’s track record. I encourage you to continue your research by taking a look at MGT’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.
