MoSys Inc (NASDAQ:MOSY) is a small-cap stock with a market capitalization of US$15.85M. 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? Companies operating in the Semiconductor industry, especially ones that are currently loss-making, are more likely to be 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. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into MOSY here.
Does MOSY generate enough cash through operations?
MOSY has built up its total debt levels in the last twelve months, from US$8.25M to US$9.16M , which is made up of current and long term debt. With this growth in debt, MOSY currently has US$3.87M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 take a look at some of MOSY’s operating efficiency ratios such as ROA here.
Can MOSY pay its short-term liabilities?
Looking at MOSY’s most recent US$6.62M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.31x. For Semiconductor 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.
Is MOSY’s debt level acceptable?
MOSY is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since MOSY is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
MOSY’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 MOSY has company-specific issues impacting its capital structure decisions. I recommend you continue to research MoSys to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MOSY’s future growth? Take a look at our free research report of analyst consensus for MOSY’s outlook.
- Historical Performance: What has MOSY’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.
- 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.