While small-cap stocks, such as Mo-Bruk SA (WSE:MBR) with its market cap of ZŁ122.79M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is crucial, since poor capital management may bring about 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. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into MBR here.
Does MBR generate enough cash through operations?
MBR’s debt levels have fallen from ZŁ43.36M to ZŁ32.66M over the last 12 months , which is made up of current and long term debt. With this debt repayment, MBR currently has ZŁ2.68M remaining in cash and short-term investments , ready to deploy into the business. Moreover, MBR has generated ZŁ13.92M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 42.62%, signalling that MBR’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 MBR’s case, it is able to generate 0.43x cash from its debt capital.
Does MBR’s liquid assets cover its short-term commitments?
Looking at MBR’s most recent ZŁ18.32M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of ZŁ14.33M, with a current ratio of 0.78x below the prudent level of 3x.
Is MBR’s debt level acceptable?With debt at 31.23% of equity, MBR may be thought of as appropriately levered. This range is considered safe as MBR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if MBR’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 MBR, the ratio of 7.01x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
MBR has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. However, 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 MBR has been performing in the past. I suggest you continue to research Mo-Bruk to get a more holistic view of the stock by looking at:
- Valuation: What is MBR worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MBR is currently mispriced by the market.
- Historical Performance: What has MBR’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.