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Mayne Pharma Group Limited (ASX:MYX) is a small-cap stock with a market capitalization of AU$1.32b. 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 Pharmaceuticals industry, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into MYX here.
How does MYX’s operating cash flow stack up against its debt?
MYX has built up its total debt levels in the last twelve months, from AU$76.83m to AU$0 , which comprises of short- and long-term debt. With this growth in debt, MYX’s cash and short-term investments stands at AU$70.65m , 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. For this article’s sake, I won’t be looking at this today, but you can examine some of MYX’s operating efficiency ratios such as ROA here.
Can MYX pay its short-term liabilities?
With current liabilities at AU$199.90m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.15x. Usually, for Pharmaceuticals companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is MYX’s debt level acceptable?
With a debt-to-equity ratio of 31.69%, MYX’s debt level may be seen as prudent. MYX is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for MYX, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Although MYX’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for MYX’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Mayne Pharma Group to get a better picture of the stock by looking at: