While small-cap stocks, such as Milkpol Spólka Akcyjna (WSE:MLP) with its market cap of ZŁ10.67M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since MLP is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into MLP here.
Does MLP generate an acceptable amount of cash through operations?
MLP’s debt levels surged from ZŁ436.33K to ZŁ621.86K over the last 12 months , which is mainly comprised of near term debt. With this rise in debt, the current cash and short-term investment levels stands at ZŁ260.41K for investing into the business. Moreover, MLP has generated cash from operations of ZŁ136.11K over the same time period, leading to an operating cash to total debt ratio of 21.89%, indicating that MLP’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires a positive net income. In MLP’s case, it is able to generate 0.22x cash from its debt capital.
Does MLP’s liquid assets cover its short-term commitments?
With current liabilities at ZŁ2.37M, the company has been able to meet these commitments with a current assets level of ZŁ3.17M, leading to a 1.34x current account ratio. Generally, for Food companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is MLP’s debt level acceptable?
With debt at 17.43% of equity, MLP may be thought of as appropriately levered. MLP is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for MLP, and the company also has the ability and headroom to increase debt if needed going forward.
MLP’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. 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 MLP has company-specific issues impacting its capital structure decisions. I recommend you continue to research Milkpol Spólka Akcyjna to get a better picture of the stock by looking at:
- 1. Valuation: What is MLP 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 MLP is currently mispriced by the market.
- 2. Historical Performance: What has MLP’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.
- 3. 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.