While small-cap stocks, such as Micron Solutions Inc (AMEX:MICR) with its market cap of US$11.07M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Healthcare Services companies, in particular ones that run negative earnings, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into MICR here.
Does MICR generate enough cash through operations?
Over the past year, MICR has ramped up its debt from US$4.78M to US$6.58M , which is made up of current and long term debt. With this growth in debt, MICR currently has US$606.99K remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of MICR’s operating efficiency ratios such as ROA here.
Can MICR pay its short-term liabilities?
At the current liabilities level of US$4.88M liabilities, the company has been able to meet these commitments with a current assets level of US$7.43M, leading to a 1.52x current account ratio. For Healthcare 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 MICR face the risk of succumbing to its debt-load?With total debt exceeding equities, MICR 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. Though, since MICR is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
MICR’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 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 MICR has company-specific issues impacting its capital structure decisions. I suggest you continue to research Micron Solutions to get a better picture of the stock by looking at:
- 1. Historical Performance: What has MICR’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.