MRC Global Inc (NYSE:MRC) is a small-cap stock with a market capitalization of US$1.80B. 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? So, understanding the company’s financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into MRC here.
Does MRC generate an acceptable amount of cash through operations?
Over the past year, MRC has ramped up its debt from US$414.00M to US$526.00M – this includes both the current and long-term debt. With this growth in debt, MRC currently has US$48.00M remaining in cash and short-term investments for investing 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 MRC’s operating efficiency ratios such as ROA here.
Does MRC’s liquid assets cover its short-term commitments?
Looking at MRC’s most recent US$562.00M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$1.32B, with a current ratio of 2.35x. Usually, for Trade Distributors companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does MRC face the risk of succumbing to its debt-load?
MRC is a relatively highly levered company with a debt-to-equity of 58.20%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether MRC 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 MRC’s, case, the ratio of 2.08x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as MRC’s low interest coverage already puts the company at higher risk of default.
MRC’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 will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how MRC has been performing in the past. I recommend you continue to research MRC Global to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MRC’s future growth? Take a look at our free research report of analyst consensus for MRC’s outlook.
- Valuation: What is MRC 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 MRC 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.
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.