Public Joint Stock Company “Ashinskiy metallurgical works” (

MCX:AMEZ

) is is ashland farms a good dog fooda small-cap stock with a market capitalization of RUруб2.0b. 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? Assessing first and foremost the financial health is essential, 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. Though, given that I have not delve into the company-specifics, I recommend you

dig deeper yourself into AMEZ here

.

Does AMEZ produce enough cash relative to debt?

AMEZ’s debt level has been constant at around RUруб7.3b over the previous year which accounts for long term debt. At this current level of debt, AMEZ currently has RUруб340m remaining in cash and short-term investments , ready to deploy into the business. Moreover, AMEZ has produced RUруб565m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 7.8%, meaning that AMEZ’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AMEZ’s case, it is able to generate 0.078x cash from its debt capital.

Can AMEZ meet its short-term obligations with the cash in hand?

Looking at AMEZ’s RUруб4.3b in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.7x. Usually, for Metals and Mining companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.

MISX:AMEZ Historical Debt January 2nd 19

Is AMEZ’s debt level acceptable?

With total debt exceeding equities, AMEZ is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if AMEZ’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 AMEZ, the ratio of 5.36x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

AMEZ’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. Since there is also no concerns around AMEZ’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure AMEZ has company-specific issues impacting its capital structure decisions. I suggest you continue to research Ashinskiy metallurgical works to get a more holistic view of the small-cap by looking at:

Story continues

Future Outlook

: What are well-informed industry analysts predicting for AMEZ’s future growth? Take a look at our

free research report of analyst consensus

for AMEZ’s outlook.

Historical Performance

: What has AMEZ’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

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.

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