Public Joint Stock Company Multisistema (MCX:MSST) is a small-cap stock with a market capitalization of RUруб77.00m. 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? Assessing first and foremost the financial health is essential, 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. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into MSST here.
How much cash does MSST generate through its operations?
MSST has shrunken its total debt levels in the last twelve months, from RUруб109.76m to RUруб80.15m . With this debt repayment, MSST’s cash and short-term investments stands at RUруб31.06m for investing into the business. Moreover, MSST has produced RUруб69.07m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 86.18%, indicating that MSST’s operating cash is sufficient to cover its 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 0.86x cash from its debt capital.
Does MSST’s liquid assets cover its short-term commitments?
Looking at MSST’s most recent RUруб1.16b liabilities, the company has been able to meet these obligations given the level of current assets of RUруб1.24b, with a current ratio of 1.07x. Generally, for Commercial Services companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does MSST face the risk of succumbing to its debt-load?MSST is a relatively highly levered company with a debt-to-equity of 72.41%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 5.01x 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.
Although MSST’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around MSST’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for MSST’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Multisistema to get a better picture of the small-cap 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 email@example.com.