J & B. Ladenis Bros SA MINERVA Knitwear Manufacturing Company (ATSE:MIN) is a small-cap stock with a market capitalization of €1.43M. 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 MIN is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into MIN here.
Does MIN generate an acceptable amount of cash through operations?
MIN’s debt level has been constant at around €15.30M over the previous year – this includes both the current and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at €240.00K , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of MIN’s operating efficiency ratios such as ROA here.
Does MIN’s liquid assets cover its short-term commitments?
With current liabilities at €19.10M, the company is not able to meet these obligations given the level of current assets of €13.83M, with a current ratio of 0.72x below the prudent level of 3x.
Can MIN service its debt comfortably?MIN is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since MIN is currently 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.
MIN’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 low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how MIN has been performing in the past. I recommend you continue to research J. & B. Ladenis Bros SA MINERVA Knitwear Manufacturing to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has MIN’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.
- 2. 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.