Everspin Technologies Inc (NASDAQ:MRAM) is a small-cap stock with a market capitalization of USD $100.35M. 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 semiconductors and semiconductor equipment industry, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes vital. 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 MRAM here.
Does MRAM generate enough cash through operations?
MRAM has sustained its debt level by about $8M over the last 12 months comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at $30M for investing into the business. However, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of MRAM’s operating efficiency ratios such as ROA here.
Can MRAM pay its short-term liabilities?
With current liabilities at $10M liabilities, it seems that the business has been able to meet these commitments with a current assets level of $40M, leading to a 3.8x current account ratio. However, anything about 3x may be excessive, since MRAM may be leaving too much capital in low-earning investments.
Is MRAM’s level of debt at an acceptable level?With debt reaching 85.52% of equity, MRAM may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since MRAM is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Are you a shareholder? At its current level of cash flow coverage, MRAM has room for improvement to better cushion for events which may require debt repayment. However, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that MRAM’s financial situation may change. I recommend keeping on top of market expectations for MRAM’s future growth on our free analysis platform.
Are you a potential investor? MRAM’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. As a following step, you should take a look at MRAM’s past performance analysis on our free platform to figure out MRAM’s financial health position.