What Does Muehlhan AG's (ETR:M4N) Balance Sheet Tell Us About It?
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Investors are always looking for growth in small-cap stocks like Muehlhan AG (ETR:M4N), with a market cap of €56m. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company's financial health becomes essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is not a comprehensive overview, so I suggest you dig deeper yourself into M4N here.
M4N’s Debt (And Cash Flows)
M4N has sustained its debt level by about €33m over the last 12 months – this includes long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at €11m to keep the business going. Additionally, M4N has generated cash from operations of €11m in the last twelve months, resulting in an operating cash to total debt ratio of 34%, signalling that M4N’s operating cash is sufficient to cover its debt.
Can M4N meet its short-term obligations with the cash in hand?
At the current liabilities level of €66m, it seems that the business has been able to meet these obligations given the level of current assets of €85m, with a current ratio of 1.28x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Construction companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is M4N’s debt level acceptable?
With a debt-to-equity ratio of 49%, M4N can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can test if M4N’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For M4N, the ratio of 6.53x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving M4N ample headroom to grow its debt facilities.
Next Steps:
Although M4N’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around M4N's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how M4N has been performing in the past. You should continue to research Muehlhan to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for M4N’s future growth? Take a look at our free research report of analyst consensus for M4N’s outlook.
Valuation: What is M4N 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 M4N 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
