Investors are always looking for growth in small-cap stocks like Meier Tobler Group AG (VTX:MTG), with a market cap of CHF216m. However, an important fact which most ignore is: how financially healthy is the business? Since MTG is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into MTG here.
How much cash does MTG generate through its operations?
MTG’s debt level has been constant at around CHF199m over the previous year made up of current and long term debt. At this constant level of debt, MTG currently has CHF16m remaining in cash and short-term investments for investing into the business. On top of this, MTG has produced CHF20m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 9.9%, meaning 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 businesses since metrics such as return on asset (ROA) requires a positive net income. In MTG’s case, it is able to generate 0.099x cash from its debt capital.
Does MTG’s liquid assets cover its short-term commitments?
With current liabilities at CHF156m, it seems that the business has been able to meet these commitments with a current assets level of CHF178m, leading to a 1.14x current account ratio. For Machinery companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Is MTG’s debt level acceptable?
MTG is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since MTG is presently loss-making, 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.
At its current level of cash flow coverage, MTG has room for improvement to better cushion for events which may require debt repayment. 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. I suggest you continue to research Meier Tobler Group to get a more holistic view of the stock by looking at:
- 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.
- 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.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.