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Public Joint Stock Company "Ashinskiy metallurgical works" (MCX:AMEZ) is a small-cap stock with a market capitalization of RUруб2.0b. 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 vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into AMEZ here.
Does AMEZ Produce Much Cash Relative To Its Debt?
AMEZ has sustained its debt level by about RUруб7.1b over the last 12 months which accounts for long term debt. At this stable level of debt, the current cash and short-term investment levels stands at RUруб558m , ready to be used for running the business. Additionally, AMEZ has generated RUруб1.6b in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 22%, meaning that AMEZ’s current level of operating cash is high enough to cover debt.
Can AMEZ meet its short-term obligations with the cash in hand?
At the current liabilities level of RUруб4.1b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.73x. The current ratio is calculated by dividing current assets by current liabilities. For Metals and Mining companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does AMEZ face the risk of succumbing to its debt-load?
Since total debt levels exceed equity, AMEZ is a highly leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can test if AMEZ’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For AMEZ, the ratio of 5.69x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving AMEZ ample headroom to grow its debt facilities.
Although AMEZ’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure AMEZ has company-specific issues impacting its capital structure decisions. I suggest you continue to research Ashinskiy metallurgical works to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AMEZ’s future growth? Take a look at our free research report of analyst consensus for AMEZ’s outlook.
- Valuation: What is AMEZ 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 AMEZ 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.
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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.