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Minerals Technologies Inc. (NYSE:MTX) is a small-cap stock with a market capitalization of US$2.0b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, this is not a comprehensive overview, so I suggest you dig deeper yourself into MTX here.
MTX’s Debt (And Cash Flows)
MTX has built up its total debt levels in the last twelve months, from US$971m to US$1.1b – this includes long-term debt. With this rise in debt, MTX currently has US$207m remaining in cash and short-term investments , ready to be used for running the business. Moreover, MTX has generated US$199m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 19%, signalling that MTX’s operating cash is less than its debt.
Can MTX pay its short-term liabilities?
Looking at MTX’s US$391m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$904m, leading to a 2.31x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Chemicals companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does MTX face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 70%, MTX can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can check to see whether MTX is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In MTX's, case, the ratio of 5.42x suggests that interest is appropriately covered, which means that lenders may be willing to lend out more funding as MTX’s high interest coverage is seen as responsible and safe practice.
MTX’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. Since there is also no concerns around MTX's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure MTX has company-specific issues impacting its capital structure decisions. You should continue to research Minerals Technologies to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MTX’s future growth? Take a look at our free research report of analyst consensus for MTX’s outlook.
- Valuation: What is MTX 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 MTX is currently mispriced by the market.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.