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While small-cap stocks, such as Micron Solutions Inc (AMEX:MICR) with its market cap of US$9.92M, 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 Healthcare Services industry, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I suggest you dig deeper yourself into MICR here.
Does MICR generate enough cash through operations?
MICR’s debt levels surged from US$3.99M to US$4.78M over the last 12 months , which is made up of current and long term debt. With this rise in debt, MICR currently has US$380.38K remaining in cash and short-term investments for investing into the business. On top of this, MICR has produced US$661.25K in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 13.84%, signalling that MICR’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In MICR’s case, it is able to generate 0.14x cash from its debt capital.
Can MICR pay its short-term liabilities?
Looking at MICR’s most recent US$4.80M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$6.33M, leading to a 1.32x current account ratio. Usually, for Healthcare Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does MICR face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, MICR is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since MICR is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
At its current level of cash flow coverage, MICR 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. Keep in mind I haven’t considered other factors such as how MICR has been performing in the past. You should continue to research Micron Solutions to get a better picture of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.