Public Joint Stock Company “Ashinskiy metallurgical works” (MISX:AMEZ) is a small-cap stock with a market capitalization of RUРУБ2.14B. 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? 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 a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into AMEZ here.
How does AMEZ’s operating cash flow stack up against its debt?
AMEZ has shrunken its total debt levels in the last twelve months, from RUРУБ9.82B to RUРУБ7.40B , which comprises of short- and long-term debt. With this debt repayment, AMEZ’s cash and short-term investments stands at RUРУБ576.50M for investing into the business. On top of this, AMEZ has generated RUРУБ1.78B in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 24.07%, meaning that AMEZ’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 AMEZ’s case, it is able to generate 0.24x cash from its debt capital.
Does AMEZ’s liquid assets cover its short-term commitments?
At the current liabilities level of RUРУБ4.04B liabilities, it appears that the company has been able to meet these obligations given the level of current assets of RUРУБ5.52B, with a current ratio of 1.37x. Generally, for Metals and Mining companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is AMEZ’s debt level acceptable?
With total debt exceeding equities, AMEZ is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if AMEZ’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 AMEZ, the ratio of 6.29x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as AMEZ’s high interest coverage is seen as responsible and safe practice.Next Steps:
AMEZ’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 AMEZ’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Ashinskiy metallurgical works to get a better picture of the stock by looking at:
- 1. Valuation: What is AMEZ 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 AMEZ is currently mispriced by the market.
- 2. Historical Performance: What has AMEZ’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.
- 3. 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.