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While small-cap stocks, such as Matomy Media Group Ltd. (LON:MTMY) with its market cap of UK£2.9m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that MTMY is not presently profitable, it’s crucial 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, these checks don't give you a full picture, so I suggest you dig deeper yourself into MTMY here.
MTMY’s Debt (And Cash Flows)
MTMY has built up its total debt levels in the last twelve months, from US$21m to US$25m – this includes long-term debt. With this increase in debt, MTMY's cash and short-term investments stands at US$7.2m to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. 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 MTMY’s operating efficiency ratios such as ROA here.
Does MTMY’s liquid assets cover its short-term commitments?
At the current liabilities level of US$63m, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$33m, leading to a current ratio of 0.53x. The current ratio is calculated by dividing current assets by current liabilities.
Is MTMY’s debt level acceptable?
MTMY is a highly-leveraged company with debt exceeding equity by over 100%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. Though, since MTMY is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
MTMY’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven't considered other factors such as how MTMY has been performing in the past. You should continue to research Matomy Media Group to get a better picture of the stock by looking at:
Historical Performance: What has MTMY'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.
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