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Metlifecare Limited (NZSE:MET): Time For A Financial Health Check

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Metlifecare Limited (NZSE:MET) is a small-cap stock with a market capitalization of NZ$1.1b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Healthcare companies, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes essential. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into MET here.

How does MET’s operating cash flow stack up against its debt?

Over the past year, MET has ramped up its debt from NZ$73m to NZ$155m – this includes long-term debt. With this rise in debt, MET’s cash and short-term investments stands at NZ$16m , ready to deploy into the business. Additionally, MET has generated NZ$111m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 72%, indicating that MET’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MET’s case, it is able to generate 0.72x cash from its debt capital.

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

At the current liabilities level of NZ$215m, it appears that the company may not have an easy time meeting these commitments with a current assets level of NZ$37m, leading to a current ratio of 0.17x.

NZSE:MET Historical Debt February 5th 19
NZSE:MET Historical Debt February 5th 19

Is MET’s debt level acceptable?

With a debt-to-equity ratio of 10%, MET’s debt level may be seen as prudent. MET is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether MET is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In MET’s, case, the ratio of 3.36x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as MET’s high interest coverage is seen as responsible and safe practice.

Next Steps:

MET’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, as shareholders, you should try and determine whether this level of debt is justified for MET, especially when liquidity may also be an issue. This is only a rough assessment of financial health, and I’m sure MET has company-specific issues impacting its capital structure decisions. You should continue to research Metlifecare to get a more holistic view of the stock by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for MET’s future growth? Take a look at our free research report of analyst consensus for MET’s outlook.

  2. Historical Performance: What has MET’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.

  3. 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.