Is Meier Tobler Group AG’s (VTX:MTG) Balance Sheet A Threat To Its Future?

Investors are always looking for growth in small-cap stocks like Meier Tobler Group AG (SWX:MTG), with a market cap of CHF390.60M. However, an important fact which most ignore is: how financially healthy is the business? Given that MTG 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, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into MTG here.

How does MTG’s operating cash flow stack up against its debt?

Over the past year, MTG has ramped up its debt from CHF35.00M to CHF178.85M , which is made up of current and long term debt. With this growth in debt, MTG’s cash and short-term investments stands at CHF29.35M , ready to deploy into the business. On top of this, MTG has produced CHF19.28M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 10.78%, signalling that MTG’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In MTG’s case, it is able to generate 0.11x cash from its debt capital.

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

At the current liabilities level of CHF129.27M liabilities, it appears that the company has been able to meet these commitments with a current assets level of CHF175.69M, leading to a 1.36x current account ratio. For Machinery companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

SWX:MTG Historical Debt May 1st 18
SWX:MTG Historical Debt May 1st 18

Does MTG face the risk of succumbing to its debt-load?

Since total debt levels have outpaced equities, MTG is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since MTG is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

MTG’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for MTG’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Meier Tobler Group to get a better picture of the stock by looking at:

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