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Investors are always looking for growth in small-cap stocks like Public Joint Stock Company Multisistema (MCX:MSST), with a market cap of RUруб297m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes essential, 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, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into MSST here.
Does MSST produce enough cash relative to debt?
MSST has shrunken its total debt levels in the last twelve months, from RUруб147m to RUруб44m made up of predominantly near term debt. With this reduction in debt, MSST currently has RUруб4.7m remaining in cash and short-term investments , ready to deploy into the business. Moreover, MSST has generated RUруб83m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 187%, indicating that MSST’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 MSST’s case, it is able to generate 1.87x cash from its debt capital.
Can MSST pay its short-term liabilities?
At the current liabilities level of RUруб1.2b, it seems that the business has been able to meet these obligations given the level of current assets of RUруб1.5b, with a current ratio of 1.16x. For Commercial Services companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is MSST’s debt level acceptable?
With debt at 16% of equity, MSST may be thought of as appropriately levered. MSST is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether MSST 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 MSST’s, case, the ratio of 48.41x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving MSST ample headroom to grow its debt facilities.
MSST has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. 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 MSST has been performing in the past. You should continue to research Multisistema to get a better picture of the stock by looking at:
- Valuation: What is MSST 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 MSST is currently mispriced by the market.
- Historical Performance: What has MSST’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.