Yahoo Finance What Investors Should Know About Memex Inc’s (CVE:OEE) Financial Strength
Investors are always looking for growth in small-cap stocks like Memex Inc (CVE:OEE), with a market cap of CA$4.0m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Software industry, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is vital. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into OEE here.
Does OEE produce enough cash relative to debt?
Over the past year, OEE has maintained its debt levels at around CA$605k – this includes long-term debt. At this current level of debt, OEE currently has CA$1.5m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of OEE’s operating efficiency ratios such as ROA here.
Can OEE meet its short-term obligations with the cash in hand?
With current liabilities at CA$1.4m, the company has been able to meet these commitments with a current assets level of CA$2.2m, leading to a 1.55x current account ratio. Generally, for Software companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is OEE’s debt level acceptable?
Since total debt levels have outpaced equities, OEE is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since OEE is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
Although OEE’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 OEE’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for OEE’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Memex to get a more holistic view of the small-cap by looking at:
Historical Performance: What has OEE’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.
