While small-cap stocks, such as Metro Mining Limited (ASX:MMI) with its market cap of A$296.24M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Oil and Gas companies, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is crucial. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into MMI here.
Does MMI generate enough cash through operations?
In the previous 12 months, MMI’s rose by about A$15.6M . With this ramp up in debt, MMI currently has A$15.3M remaining in cash and short-term investments , ready to deploy into the business. However, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 MMI’s operating efficiency ratios such as ROA here.
Can MMI pay its short-term liabilities?
With current liabilities at A$20.1M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of A$16.3M, leading to a 0.81x current account ratio. which is under the appropriate industry ratio of 3x.
Is MMI’s level of debt at an acceptable level?
With debt at 19.30% of equity, MMI may be thought of as appropriately levered. This range is considered safe as MMI is not taking on too much debt obligation, which may be constraining for future growth. MMI’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? 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, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may change. I recommend keeping abreast of market expectations for MMI’s future growth on our free analysis platform.
Are you a potential investor? MMI appears to have a sensible level of debt, meaning there’s some room to take on more debt if needed. But its current cash flow coverage of existing debt, in addition to the low liquidity, is concerning. However, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of MMI’s track record. You should continue your analysis by taking a look at MMI’s past performance analysis on our free platform to figure out MMI’s financial health position.
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.