Is Meridian Mining SE. (CVE:MNO) A Financially Sound Company?
While small-cap stocks, such as Meridian Mining SE. (TSXV:MNO) with its market cap of CA$46.69M, 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 MNO is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into MNO here.
Does MNO generate enough cash through operations?
Over the past year, MNO has ramped up its debt from US$1.17M to US$8.10M , which comprises of short- and long-term debt. With this growth in debt, MNO’s cash and short-term investments stands at US$4.17M , ready to deploy into the business. Moving onto cash from operations, 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. For this article’s sake, I won’t be looking at this today, but you can examine some of MNO’s operating efficiency ratios such as ROA here.
Can MNO meet its short-term obligations with the cash in hand?
With current liabilities at US$5.81M, it seems that the business has been able to meet these commitments with a current assets level of US$9.86M, leading to a 1.7x current account ratio. Usually, for Metals and Mining companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does MNO face the risk of succumbing to its debt-load?
With debt reaching 51.29% of equity, MNO may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since MNO is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
MNO’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure MNO has company-specific issues impacting its capital structure decisions. I recommend you continue to research Meridian Mining to get a better picture of the stock by looking at:
1. Historical Performance: What has MNO’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.
2. 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 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.
