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Investors are always looking for growth in small-cap stocks like Martela Oyj (HLSE:MARAS), with a market cap of €21.54M. However, an important fact which most ignore is: how financially healthy is the business? Given that MARAS is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into MARAS here.
Does MARAS generate enough cash through operations?
MARAS has built up its total debt levels in the last twelve months, from €8.29M to €13.27M , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €7.28M 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. For this article’s sake, I won’t be looking at this today, but you can assess some of MARAS’s operating efficiency ratios such as ROA here.
Can MARAS pay its short-term liabilities?
With current liabilities at €26.55M, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.63x. Usually, for Commercial Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does MARAS face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 58.66%, MARAS can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since MARAS is currently unprofitable, sustainability of its current state of operations becomes a concern. 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, MARAS has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how MARAS has been performing in the past. You should continue to research Martela Oyj to get a more holistic view of the stock by looking at: