Metminco Limited (ASX:MNC): Time For A Financial Health Check
While small-cap stocks, such as Metminco Limited (ASX:MNC) with its market cap of AUD A$7.40M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. The significance of doing due diligence on a company’s financial strength stems from the fact that over 20,000 companies go bankrupt in every quarter in the US alone. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. See our latest analysis for MNC
Does MNC generate an acceptable amount of cash through operations?
While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. These adverse events bring devastation and yet does not absolve the company from its debt. Fortunately, we can test the company’s capacity to pay back its debtholders without summoning any catastrophes by looking at how much cash it generates from its current operations. Last year, MNC’s operating cash flow was -2.56x its current debt. This means what MNC can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at MNC’s operations at this point in time.
Can MNC pay its short-term liabilities?
What about its commitments to other stakeholders such as payments to suppliers and employees? In times of adverse events, MNC may need to liquidate its short-term assets to pay these immediate obligations. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that MNC does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Can MNC service its debt comfortably?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. MNC’s debt-to-equity ratio stands at 6.24%, which indicates that the company faces low risk associated with debt.
Next Steps:
Are you a shareholder? Although MNC’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may be different. I recommend keeping abreast of market expectations for MNC’s future growth on our free analysis platform.
Are you a potential investor? Metminco currently has financial flexibility to ramp up growth in the future. In addition, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. In order to build your confidence in the stock, you need to also analyse the company’s track record. You should continue your analysis by taking a look at MNC’s past performance analysis on our free platform to figure out MNC’s financial health position.
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.