Meier Tobler Group AG (VTX:MTG) is a small-cap stock with a market capitalization of CHF360.60m. 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? Since MTG is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into MTG here.
Does MTG produce enough cash relative to debt?
MTG has built up its total debt levels in the last twelve months, from CHF35.00m to CHF0 , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at CHF29.35m for investing into the business. On top of this, MTG has produced cash from operations of CHF19.28m over the same time period, leading to an operating cash to total debt ratio of 10.78%, meaning that MTG’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires a positive net income. In MTG’s case, it is able to generate 0.11x cash from its debt capital.
Can MTG pay its short-term liabilities?
With current liabilities at CHF129.27m, 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 as there’s enough of a cash buffer without holding too capital in low return investments.
Can MTG service its debt comfortably?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 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.
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 exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how MTG has been performing in the past. I suggest you continue to research Meier Tobler Group to get a better picture 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.