Investors are always looking for growth in small-cap stocks like Murray Cod Australia Limited (ASX:MCA), with a market cap of A$22.54M. However, an important fact which most ignore is: how financially healthy is the business? Since MCA is loss-making right now, it’s vital 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. However, since I only look at basic financial figures, I recommend you dig deeper yourself into MCA here.
Does MCA generate enough cash through operations?
MCA has shrunken its total debt levels in the last twelve months, from A$1.0M to A$0.7M , which is made up of current and long term debt. With this debt repayment, the current cash and short-term investment levels stands at A$3.1M , ready to deploy into the business. However, 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 take a look at some of MCA’s operating efficiency ratios such as ROA here.
Does MCA’s liquid assets cover its short-term commitments?
At the current liabilities level of A$0.8M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 7.25x. However, anything above 3x is considered high and could mean that MCA has too much idle capital in low-earning investments.
Can MCA service its debt comfortably?
MCA’s level of debt is low relative to its total equity, at 7.96%. MCA is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is extremely low for MCA, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? Although MCA’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 exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may be different. I suggest keeping on top of market expectations for MCA’s future growth on our free analysis platform.
Are you a potential investor? MCA’s low-debt position gives it headroom for future growth funding in the future. Moreover, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more conviction in the stock, you need to further analyse MCA’s track record. I encourage you to continue your research by taking a look at MCA’s past performance analysis on our free platform to figure out MCA’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.