Mineral Commodities Ltd (ASX:MRC) is a small-cap stock with a market capitalization of AU$58.09M. 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? Assessing first and foremost the financial health is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into MRC here.

Does MRC generate an acceptable amount of cash through operations?

MRC’s debt levels have fallen from US$7.39M to US$4.21M over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, MRC currently has US$11.52M remaining in cash and short-term investments for investing into the business. Additionally, MRC has produced US$22.34M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 531.15%, meaning that MRC’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MRC’s case, it is able to generate 5.31x cash from its debt capital.

Can MRC pay its short-term liabilities?

At the current liabilities level of US$9.84M liabilities, the company has been able to meet these obligations given the level of current assets of US$25.66M, with a current ratio of 2.61x. For Metals and Mining 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.

Is MRC’s debt level acceptable?

With a debt-to-equity ratio of 9.16%, MRC’s debt level is relatively low. MRC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.

Next Steps:

MRC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how MRC has been performing in the past. I suggest you continue to research Mineral Commodities to get a better picture of the stock by looking at:

• 1. Valuation: What is MRC 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 MRC is currently mispriced by the market.

• 2. Historical Performance: What has MRC’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.

To help readers see pass 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.