While small-cap stocks, such as Montan Mining Corp (TSXV:MNY) with its market cap of CA$1.26M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that MNY is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into MNY here.
Does MNY generate an acceptable amount of cash through operations?
MNY’s debt levels surged from CA$0.2M to CA$0.7M over the last 12 months , which is made up of current and long term debt. With this rise in debt, MNY currently has CA$0.0M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can take a look at some of MNY’s operating efficiency ratios such as ROA here.
Does MNY’s liquid assets cover its short-term commitments?
With current liabilities at CA$1.3M, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.12x, which is below the prudent industry ratio of 3x.
Is MNY’s debt level acceptable?MNY 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. Though, since MNY is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
With a high level of debt on its balance sheet, MNY could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for MNY to increase its operational efficiency. In addition to this, the company may not 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 MNY has been performing in the past. I recommend you continue to research Montan Mining to get a more holistic view of the stock by looking at:
1. Valuation: What is MNY 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 MNY is currently mispriced by the market.
2. Historical Performance: What has MNY’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.
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.