Investors are always looking for growth in small-cap stocks like Mangata Holding SA (WSE:MGT), with a market cap of zł600.92m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into MGT here.
How does MGT’s operating cash flow stack up against its debt?
MGT has built up its total debt levels in the last twelve months, from zł91.62m to zł123.84m , which comprises of short- and long-term debt. With this growth in debt, MGT currently has zł33.14m remaining in cash and short-term investments for investing into the business. Moreover, MGT has generated zł51.18m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 41.33%, signalling that MGT’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational 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?
At the current liabilities level of zł174.60m liabilities, the company has been able to meet these commitments with a current assets level of zł290.30m, leading to a 1.66x current account ratio. For Machinery companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Is MGT’s debt level acceptable?With debt at 28.73% of equity, MGT may be thought of as appropriately levered. MGT is not taking on too much debt commitment, which may be constraining for future growth. 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 debtors may be willing to loan the company more money, giving MGT ample headroom to grow its debt facilities.
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. This is only a rough assessment of financial health, and I’m sure MGT has company-specific issues impacting its capital structure decisions. You should continue to research Mangata Holding to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MGT’s future growth? Take a look at our free research report of analyst consensus for MGT’s outlook.
- 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.
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 firstname.lastname@example.org.