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While small-cap stocks, such as Metalo Manufacturing Inc (CNSX:MMI) with its market cap of CA$6.8m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since MMI is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. 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 recommend you dig deeper yourself into MMI here.
How much cash does MMI generate through its operations?
MMI’s debt levels surged from CA$4.9m to CA$6.8m over the last 12 months , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at CA$207.3k for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of MMI’s operating efficiency ratios such as ROA here.
Can MMI pay its short-term liabilities?
Looking at MMI’s most recent CA$5.1m liabilities, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.054x.
Is MMI’s debt level acceptable?
MMI’s level of debt is appropriate relative to its total equity, at 14.5%. MMI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with MMI, and the company has plenty of headroom and ability to raise debt should it need to in the future.
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MMI’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for MMI’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Metalo Manufacturing to get a more holistic view of the stock by looking at:
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Historical Performance: What has MMI’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.
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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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.