MoSys Inc (NASDAQ:MOSY) is a small-cap stock with a market capitalization of US$10.60M. 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? Companies operating in the Semiconductor industry, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into MOSY here.
Does MOSY generate enough cash through operations?
Over the past year, MOSY has ramped up its debt from US$8.25M to US$9.16M , which comprises of short- and long-term debt. With this increase in debt, MOSY currently has US$3.87M remaining in cash and short-term investments , ready to deploy 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of MOSY’s operating efficiency ratios such as ROA here.
Can MOSY meet its short-term obligations with the cash in hand?
With current liabilities at US$6.62M, it seems that the business has been able to meet these obligations given the level of current assets of US$8.66M, with a current ratio of 1.31x. For Semiconductor companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is MOSY’s debt level acceptable?Since total debt levels have outpaced equities, MOSY is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since MOSY is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, MOSY has room for improvement to better cushion for events which may require debt repayment. Though, 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 MOSY’s financial health. Other important fundamentals need to be considered alongside. You should continue to research MoSys to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for MOSY’s future growth? Take a look at our free research report of analyst consensus for MOSY’s outlook.
- 2. Historical Performance: What has MOSY’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.