Investors are always looking for growth in small-cap stocks like Marapharm Ventures Inc (DB:2M0), with a market cap of €52.38M. However, an important fact which most ignore is: how financially healthy is the business? Pharmaceuticals companies, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I suggest you dig deeper yourself into 2M0 here.

Does 2M0 generate an acceptable amount of cash through operations?

2M0 has built up its total debt levels in the last twelve months, from CA$393.39K to CA$1.29M , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$4.32M , ready to deploy 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 examine some of 2M0’s operating efficiency ratios such as ROA here.

Does 2M0’s liquid assets cover its short-term commitments?

Looking at 2M0’s most recent CA$681.61K liabilities, the company has been able to meet these commitments with a current assets level of CA$6.66M, leading to a 9.77x current account ratio. However, anything about 3x may be excessive, since 2M0 may be leaving too much capital in low-earning investments.

Can 2M0 service its debt comfortably?

With a debt-to-equity ratio of 8.95%, 2M0’s debt level is relatively low. This range is considered safe as 2M0 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is virtually non-existent with 2M0, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

2M0’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure 2M0 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Marapharm Ventures to get a better picture of the stock by looking at:

• 1. Historical Performance: What has 2M0’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.

• 2. 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 pass 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.