What You Must Know About Universal mCloud Corp's (CVE:MCLD) Financial Strength

While small-cap stocks, such as Universal mCloud Corp (CVE:MCLD) with its market cap of CA$42.90m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Internet industry, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company's financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I suggest you dig deeper yourself into MCLD here.

How much cash does MCLD generate through its operations?

Over the past year, MCLD has borrowed debt capital of around CA$111.65k made up of current and long term debt. With this growth in debt, MCLD currently has CA$105.76k remaining in cash and short-term investments , ready to deploy 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 assess some of MCLD’s operating efficiency ratios such as ROA here.

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

With current liabilities at CA$4.03m, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.19x, which is below the prudent industry ratio of 3x.

Can MCLD service its debt comfortably?

With a debt-to-equity ratio of 5.36%, MCLD's debt level is relatively low. This range is considered safe as MCLD is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. MCLD's risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.

Next Steps:

Although MCLD’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I'm sure MCLD has company-specific issues impacting its capital structure decisions. You should continue to research Universal mCloud to get a more holistic view of the stock by looking at:

1. Valuation: What is MCLD 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 MCLD is currently mispriced by the market.
2. Historical Performance: What has MCLD'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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.