Investors are always looking for growth in small-cap stocks like Minerals Technologies Inc (NYSE:MTX), with a market cap of US$2.0b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, 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, since I only look at basic financial figures, I recommend you dig deeper yourself into MTX here.
Does MTX produce enough cash relative to debt?
Over the past year, MTX has ramped up its debt from US$1.0b to US$1.1b , which comprises of short- and long-term debt. With this increase in debt, MTX’s cash and short-term investments stands at US$211m for investing into the business. Moreover, MTX has generated cash from operations of US$190m in the last twelve months, leading to an operating cash to total debt ratio of 18%, signalling that MTX’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MTX’s case, it is able to generate 0.18x cash from its debt capital.
Can MTX meet its short-term obligations with the cash in hand?
With current liabilities at US$420m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.15x. Generally, for Chemicals companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does MTX face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 79%, MTX can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In MTX’s case, the ratio of 5.67x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
At its current level of cash flow coverage, MTX 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 MTX has been performing in the past. I recommend you continue to research Minerals Technologies to get a better picture of the stock 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.
To help readers see past 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. For errors that warrant correction please contact the editor at email@example.com.