TROC DE L’ILE SA (EPA:MLTRO) is a small-cap stock with a market capitalization of €2.89m. 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? Specialty Retail businesses operating in the environment facing headwinds from current disruption, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I recommend you dig deeper yourself into MLTRO here.
How much cash does MLTRO generate through its operations?
MLTRO has built up its total debt levels in the last twelve months, from €3.14m to €0 , which comprises of short- and long-term debt. With this rise in debt, MLTRO currently has €1.26m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of MLTRO’s operating efficiency ratios such as ROA here.
Does MLTRO’s liquid assets cover its short-term commitments?
Looking at MLTRO’s most recent €8.32m liabilities, it appears that the company has not been able to meet these commitments with a current assets level of €4.60m, leading to a 0.55x current account ratio. which is under the appropriate industry ratio of 3x.
Does MLTRO face the risk of succumbing to its debt-load?With total debt exceeding equities, MLTRO is considered a highly levered 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 MLTRO is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
MLTRO’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for MLTRO’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research TROC DE L’ILE to get a more holistic view of the stock by looking at:
- Historical Performance: What has MLTRO’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.
- 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.