Is Mediagrif Interactive Technologies Inc. (TSE:MDF) A Financially Sound Company?

Mediagrif Interactive Technologies Inc. (TSE:MDF) is a small-cap stock with a market capitalization of CA$145m. 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? Understanding the company's financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company's balance sheet strength. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into MDF here.

MDF’s Debt (And Cash Flows)

MDF has shrunk its total debt levels in the last twelve months, from CA$31m to CA$27m , which includes long-term debt. With this debt repayment, the current cash and short-term investment levels stands at CA$13m to keep the business going. Additionally, MDF has produced cash from operations of CA$15m during the same period of time, leading to an operating cash to total debt ratio of 55%, indicating that MDF’s current level of operating cash is high enough to cover debt.

Can MDF meet its short-term obligations with the cash in hand?

Looking at MDF’s CA$29m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.03x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Interactive Media and Services companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can MDF service its debt comfortably?

MDF’s level of debt is appropriate relative to its total equity, at 20%. MDF is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if MDF’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 MDF, the ratio of 9.87x suggests that interest is appropriately covered, which means that lenders may be willing to lend out more funding as MDF’s high interest coverage is seen as responsible and safe practice.

Next Steps:

MDF has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure MDF has company-specific issues impacting its capital structure decisions. You should continue to research Mediagrif Interactive Technologies to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for MDF’s future growth? Take a look at our free research report of analyst consensus for MDF’s outlook.
2. Valuation: What is MDF 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 MDF is currently mispriced by the market.
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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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