Marlowe plc (LON:MRL) is a small-cap stock with a market capitalization of UK£168m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that MRL is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into MRL here.
How much cash does MRL generate through its operations?
Over the past year, MRL has ramped up its debt from UK£7.5m to UK£12m – this includes long-term debt. With this rise in debt, MRL currently has UK£17m remaining in cash and short-term investments for investing into the business. Moreover, MRL has produced cash from operations of UK£2.5m over the same time period, leading to an operating cash to total debt ratio of 20%, signalling that MRL’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In MRL’s case, it is able to generate 0.2x cash from its debt capital.
Can MRL meet its short-term obligations with the cash in hand?
At the current liabilities level of UK£33m, it seems that the business has been able to meet these commitments with a current assets level of UK£55m, leading to a 1.67x current account ratio. Usually, for Commercial Services companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is MRL’s debt level acceptable?
With a debt-to-equity ratio of 18%, MRL’s debt level may be seen as prudent. MRL is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for MRL, and the company also has the ability and headroom to increase debt if needed going forward.
MRL’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for MRL’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Marlowe to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MRL’s future growth? Take a look at our free research report of analyst consensus for MRL’s outlook.
- Valuation: What is MRL 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 MRL 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 past 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.
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