Yahoo Finance Is Mega Sonic Spólka Akcyjna’s (WSE:MGA) Balance Sheet Strong Enough To Weather A Storm?
While small-cap stocks, such as Mega Sonic Spólka Akcyjna (WSE:MGA) with its market cap of zł5.5m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. IT companies, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into MGA here.
How much cash does MGA generate through its operations?
Over the past year, MGA has ramped up its debt from zł12.9m to zł15.5m , which comprises of short- and long-term debt. With this growth in debt, MGA currently has zł41.8m remaining in cash and short-term investments , 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 take a look at some of MGA’s operating efficiency ratios such as ROA here.
Can MGA meet its short-term obligations with the cash in hand?
At the current liabilities level of zł21.9m liabilities, the company has been able to meet these obligations given the level of current assets of zł51.3m, with a current ratio of 2.35x. For IT companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can MGA service its debt comfortably?
With total debt exceeding equities, MGA is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In MGA’s case, the ratio of 10.2x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as MGA’s high interest coverage is seen as responsible and safe practice.
Next Steps:
MGA’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how MGA has been performing in the past. I recommend you continue to research Mega Sonic Spólka Akcyjna to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MGA’s future growth? Take a look at our free research report of analyst consensus for MGA’s outlook.
Valuation: What is MGA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MGA is currently mispriced by the market.
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.
