Is Manaksia Coated Metals and Industries Limited’s (NSE:MNKCMILTD) Balance Sheet A Threat To Its Future?

Manaksia Coated Metals and Industries Limited (NSE:MNKCMILTD) is a small-cap stock with a market capitalization of ₹802.79m. 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? Evaluating financial health as part of your investment thesis is crucial, 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. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into MNKCMILTD here.

Does MNKCMILTD produce enough cash relative to debt?

MNKCMILTD has built up its total debt levels in the last twelve months, from ₹579.76m to ₹0 , which comprises of short- and long-term debt. With this growth in debt, MNKCMILTD currently has ₹104.30m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of MNKCMILTD’s operating efficiency ratios such as ROA here.

Does MNKCMILTD’s liquid assets cover its short-term commitments?

At the current liabilities level of ₹1.19b liabilities, it appears that the company has been able to meet these commitments with a current assets level of ₹1.48b, leading to a 1.24x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NSEI:MNKCMILTD Historical Debt June 26th 18
NSEI:MNKCMILTD Historical Debt June 26th 18

Is MNKCMILTD’s debt level acceptable?

MNKCMILTD 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. We can test if MNKCMILTD’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 MNKCMILTD, the ratio of 1.71x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as MNKCMILTD’s low interest coverage already puts the company at higher risk of default.

Next Steps:

MNKCMILTD’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, 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 MNKCMILTD’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Manaksia Coated Metals and Industries to get a more holistic view of the stock by looking at:

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