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While small-cap stocks, such as Public Joint Stock Company Research and Production Corporation United Wagon Company (MISX:UWGN) with its market cap of RUРУБ91.64B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that UWGN is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. 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 suggest you dig deeper yourself into UWGN here.
How does UWGN’s operating cash flow stack up against its debt?
Over the past year, UWGN has maintained its debt levels at around RUРУБ102.75B – this includes both the current and long-term debt. At this current level of debt, UWGN’s cash and short-term investments stands at RUРУБ7.65B for investing into the business. Additionally, UWGN has generated cash from operations of RUРУБ8.91B in the last twelve months, resulting in an operating cash to total debt ratio of 8.67%, meaning that UWGN’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In UWGN’s case, it is able to generate 0.087x cash from its debt capital.
Does UWGN’s liquid assets cover its short-term commitments?
At the current liabilities level of RUРУБ35.80B liabilities, it appears that the company has not been able to meet these commitments with a current assets level of RUРУБ31.47B, leading to a 0.88x current account ratio. which is under the appropriate industry ratio of 3x.
Can UWGN service its debt comfortably?
With total debt exceeding equities, UWGN is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since UWGN 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:
UWGN’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. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure UWGN has company-specific issues impacting its capital structure decisions. I recommend you continue to research Research and Production United Wagon to get a more holistic view of the stock by looking at: