Is MBB SE's (ETR:MBB) Balance Sheet A Threat To Its Future?

While small-cap stocks, such as MBB SE (ETR:MBB) with its market cap of €482m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into MBB here.

Does MBB produce enough cash relative to debt?

Over the past year, MBB has maintained its debt levels at around €64m including long-term debt. At this stable level of debt, MBB currently has €297m remaining in cash and short-term investments , ready to deploy into the business. Additionally, MBB has produced €13m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 20%, indicating that MBB’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MBB’s case, it is able to generate 0.2x cash from its debt capital.

Can MBB pay its short-term liabilities?

At the current liabilities level of €124m, it appears that the company has been able to meet these obligations given the level of current assets of €496m, with a current ratio of 4.01x. However, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.

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

With a debt-to-equity ratio of 13%, MBB's debt level may be seen as prudent. This range is considered safe as MBB is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if MBB’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 MBB, the ratio of 28.21x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

MBB’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven't considered other factors such as how MBB has been performing in the past. I recommend you continue to research MBB to get a better picture of the stock by looking at:

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

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 editorial-team@simplywallst.com.

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.