Yahoo Finance What You Must Know About Marley Spoon AG’s (ASX:MMM) Financial Strength
While small-cap stocks, such as Marley Spoon AG (ASX:MMM) with its market cap of AU$63m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that MMM is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into MMM here.
How much cash does MMM generate through its operations?
MMM has built up its total debt levels in the last twelve months, from €3.7m to €19m , which includes long-term debt. With this growth in debt, MMM’s cash and short-term investments stands at €40m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 examine some of MMM’s operating efficiency ratios such as ROA here.
Does MMM’s liquid assets cover its short-term commitments?
Looking at MMM’s €28m in current liabilities, the company has been able to meet these commitments with a current assets level of €47m, leading to a 1.68x current account ratio. For Hospitality companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does MMM face the risk of succumbing to its debt-load?
With total debt exceeding equities, MMM is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since MMM is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
MMM’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how MMM has been performing in the past. I recommend you continue to research Marley Spoon to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for MMM’s future growth? Take a look at our free research report of analyst consensus for MMM’s outlook.
Historical Performance: What has MMM’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.
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.
