What Investors Should Know About Mallinckrodt Public Limited Company's (NYSE:MNK) Financial Strength

While small-cap stocks, such as Mallinckrodt Public Limited Company (NYSE:MNK) with its market cap of $1.93B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Pharmaceuticals industry, in particular ones that run negative earnings, tend to be high risk. So, understanding the company's financial health becomes crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into MNK here.

Does MNK generate enough cash through operations?

MNK has sustained its debt level by about $6,152.0M over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, MNK currently has $353.1M remaining in cash and short-term investments , ready to deploy into the business. Additionally, MNK has produced $782.4M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 12.72%, signalling that MNK’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires a positive net income. In MNK’s case, it is able to generate 0.13x cash from its debt capital.

Can MNK pay its short-term liabilities?

Looking at MNK’s most recent $1,307.2M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.2x. Usually, for Pharmaceuticals 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 MNK service its debt comfortably?

With total debt exceeding equities, MNK 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. However, since MNK is currently unprofitable, 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.

Next Steps:

MNK’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. Though, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Keep in mind I haven't considered other factors such as how MNK has been performing in the past. I recommend you continue to research Mallinckrodt to get a more holistic view of the stock by looking at:

• 1. Future Outlook: What are well-informed industry analysts predicting for MNK’s future growth? Take a look at our free research report of analyst consensus for MNK’s outlook.
• 2. Valuation: What is MNK 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 MNK is currently mispriced by the market.
• 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.