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Investors are always looking for growth in small-cap stocks like Matachewan Consolidated Mines, Limited (CVE:MCM.A), with a market cap of CA$2.2m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Oil and Gas industry, in particular ones that run negative earnings, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into MCM.A here.
How does MCM.A’s operating cash flow stack up against its debt?
MCM.A’s debt levels have fallen from CA$1.1m to CA$627k over the last 12 months , which is mainly comprised of near term debt. With this debt repayment, MCM.A’s cash and short-term investments stands at CA$2.7m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of MCM.A’s operating efficiency ratios such as ROA here.
Can MCM.A meet its short-term obligations with the cash in hand?
At the current liabilities level of CA$737k, it appears that the company has been able to meet these commitments with a current assets level of CA$2.8m, leading to a 3.85x current account ratio. However, a ratio above 3x may be considered excessive by some investors.
Can MCM.A service its debt comfortably?
With a debt-to-equity ratio of 21%, MCM.A’s debt level may be seen as prudent. MCM.A is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with MCM.A, and the company has plenty of headroom and ability to raise debt should it need to in the future.
MCM.A’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for MCM.A’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Matachewan Consolidated Mines to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MCM.A’s future growth? Take a look at our free research report of analyst consensus for MCM.A’s outlook.
- Historical Performance: What has MCM.A’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 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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.