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Investors are always looking for growth in small-cap stocks like The Manitowoc Company, Inc. (NYSE:MTW), with a market cap of US$550m. However, an important fact which most ignore is: how financially healthy is the business? Since MTW is loss-making right now, it’s vital to evaluate the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into MTW here.
Does MTW Produce Much Cash Relative To Its Debt?
MTW's debt levels surged from US$274m to US$398m over the last 12 months , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$49m to keep the business going. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of MTW’s operating efficiency ratios such as ROA here.
Can MTW meet its short-term obligations with the cash in hand?
At the current liabilities level of US$505m, it appears that the company has been able to meet these obligations given the level of current assets of US$888m, with a current ratio of 1.76x. The current ratio is the number you get when you divide current assets by current liabilities. For Machinery 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.
Can MTW service its debt comfortably?
MTW is a relatively highly levered company with a debt-to-equity of 60%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since MTW is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although MTW’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around MTW'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 MTW has company-specific issues impacting its capital structure decisions. You should continue to research Manitowoc Company to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MTW’s future growth? Take a look at our free research report of analyst consensus for MTW’s outlook.
- Valuation: What is MTW 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 MTW 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.
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 firstname.lastname@example.org. 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.