Investors are always looking for growth in small-cap stocks like Mangata Holding SA (WSE:MGT), with a market cap of zł599.58m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into MGT here.
Does MGT produce enough cash relative to debt?
MGT has built up its total debt levels in the last twelve months, from zł88.57m to zł0 , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at zł41.37m , ready to deploy into the business. Additionally, MGT has produced cash from operations of zł54.71m during the same period of time, leading to an operating cash to total debt ratio of 41.26%, meaning that MGT’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MGT’s case, it is able to generate 0.41x cash from its debt capital.
Can MGT pay its short-term liabilities?
Looking at MGT’s most recent zł161.04m liabilities, the company has been able to meet these obligations given the level of current assets of zł272.44m, with a current ratio of 1.69x. Generally, for Machinery companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can MGT service its debt comfortably?With debt at 28.73% of equity, MGT may be thought of as appropriately levered. This range is considered safe as MGT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether MGT is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In MGT’s, case, the ratio of 33.67x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as MGT’s high interest coverage is seen as responsible and safe practice.
MGT’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, 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 MGT has been performing in the past. I suggest you continue to research Mangata Holding to get a more holistic view of the stock by looking at:
- Historical Performance: What has MGT’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.