While small-cap stocks, such as Mesa Laboratories, Inc. ( NASDAQ:MLAB ) with its market cap of US$913m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company’s balance sheet strength. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into MLAB here .
MLAB’s Debt (And Cash Flows)
MLAB has shrunk its total debt levels in the last twelve months, from US$56m to US$29m – this includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$5.7m , ready to be used for running the business. Additionally, MLAB has generated US$29m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 99%, indicating that MLAB’s operating cash is sufficient to cover its debt.
Does MLAB’s liquid assets cover its short-term commitments?
At the current liabilities level of US$21m, it seems that the business has been able to meet these obligations given the level of current assets of US$33m, with a current ratio of 1.57x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Electronic companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does MLAB face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 27%, MLAB’s debt level may be seen as prudent. MLAB is not taking on too much debt commitment, which may be constraining for future growth.
MLAB’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for MLAB’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Mesa Laboratories to get a more holistic view of the stock by looking at:
- Future Outlook : What are well-informed industry analysts predicting for MLAB’s future growth? Take a look at our free research report of analyst consensus for MLAB’s outlook.
- Valuation : What is MLAB 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 MLAB 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 .
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