Interregional Distribution Grid Company of Centre, Public Joint Stock Company (MCX:MRKC): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Interregional Distribution Grid Company of Centre, Public Joint Stock Company (MCX:MRKC), with a market cap of RUруб12b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I suggest you dig deeper yourself into MRKC here.
How does MRKC’s operating cash flow stack up against its debt?
MRKC has shrunken its total debt levels in the last twelve months, from RUруб42b to RUруб40b , which also accounts for long term debt. With this reduction in debt, the current cash and short-term investment levels stands at RUруб216m , ready to deploy into the business. On top of this, MRKC has generated RUруб13b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 33%, indicating that MRKC’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MRKC’s case, it is able to generate 0.33x cash from its debt capital.
Does MRKC’s liquid assets cover its short-term commitments?
Looking at MRKC’s RUруб18b in current liabilities, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.81x.
Is MRKC’s debt level acceptable?
With debt reaching 87% of equity, MRKC may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if MRKC’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 MRKC, the ratio of 2.59x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
MRKC’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure MRKC has company-specific issues impacting its capital structure decisions. You should continue to research Interregional Distribution Grid Company of Centre to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MRKC’s future growth? Take a look at our free research report of analyst consensus for MRKC’s outlook.
Valuation: What is MRKC 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 MRKC 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.
