Mitel Networks Corporation (NASDAQ:MITL): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Mitel Networks Corporation (NASDAQ:MITL), with a market cap of US$1.05B. However, an important fact which most ignore is: how financially healthy is the business? Communications companies, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into MITL here.
Does MITL generate enough cash through operations?
Over the past year, MITL has ramped up its debt from US$586.00M to US$629.10M , which is made up of current and long term debt. With this increase in debt, MITL currently has US$43.30M remaining in cash and short-term investments , ready to deploy into the business. On top of this, MITL has produced US$36.70M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 5.83%, meaning that MITL’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In MITL’s case, it is able to generate 0.058x cash from its debt capital.
Can MITL meet its short-term obligations with the cash in hand?
At the current liabilities level of US$438.70M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$451.20M, with a current ratio of 1.03x. For Communications companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does MITL face the risk of succumbing to its debt-load?
MITL is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since MITL is presently unprofitable, 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.
Next Steps:
At its current level of cash flow coverage, MITL has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how MITL has been performing in the past. You should continue to research Mitel Networks to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for MITL’s future growth? Take a look at our free research report of analyst consensus for MITL’s outlook.
2. Valuation: What is MITL 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 MITL is currently mispriced by the market.
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.
