While small-cap stocks, such as Public Joint Stock Company “Ashinskiy metallurgical works” (MCX:AMEZ) with its market cap of RUруб2.03b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. 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. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into AMEZ here.
Does AMEZ produce enough cash relative to debt?
AMEZ’s debt level has been constant at around RUруб7.28b over the previous year comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at RUруб339.9m for investing into the business. On top of this, AMEZ has produced cash from operations of RUруб564.7m in the last twelve months, leading to an operating cash to total debt ratio of 7.8%, signalling that AMEZ’s current level of operating cash is not high enough to cover 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 0.078x cash from its debt capital.
Does AMEZ’s liquid assets cover its short-term commitments?
At the current liabilities level of RUруб4.33b liabilities, it appears that the company has been able to meet these obligations given the level of current assets of RUруб7.37b, with a current ratio of 1.7x. Usually, for Metals and Mining companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can AMEZ service its debt comfortably?With total debt exceeding equities, AMEZ is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. 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 5.4x 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.
At its current level of cash flow coverage, AMEZ has room for improvement to better cushion for events which may require debt repayment. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure AMEZ has company-specific issues impacting its capital structure decisions. I recommend you continue to research Ashinskiy metallurgical works to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AMEZ’s future growth? Take a look at our free research report of analyst consensus for AMEZ’s outlook.
- 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.
- 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.