While small-cap stocks, such as Public Joint Stock Company Multisistema (MISX:MSST) with its market cap of RUРУБ96.00M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that MSST is not presently profitable, it’s crucial to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into MSST here.
Does MSST generate enough cash through operations?
MSST has built up its total debt levels in the last twelve months, from RUРУБ32.15M to RUРУБ109.76M , which comprises of short- and long-term debt. With this growth in debt, MSST currently has RUРУБ1.98M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of MSST’s operating efficiency ratios such as ROA here.
Can MSST meet its short-term obligations with the cash in hand?
Looking at MSST’s most recent RUРУБ248.10M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of RUРУБ271.22M, with a current ratio of 1.09x. 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.
Does MSST face the risk of succumbing to its debt-load?Since total debt levels have outpaced equities, MSST is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since MSST is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
MSST’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for MSST’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Multisistema to get a better picture of the stock by looking at:
- 1. 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.
- 2. 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.