Is Marrone Bio Innovations, Inc.’s (NASDAQ:MBII) Balance Sheet Strong Enough To Weather A Storm?

While small-cap stocks, such as Marrone Bio Innovations, Inc. (NASDAQ:MBII) with its market cap of US$165m, 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 MBII is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into MBII here.

How does MBII’s operating cash flow stack up against its debt?

MBII has shrunken its total debt levels in the last twelve months, from US$60m to US$21m – this includes long-term debt. With this reduction in debt, MBII’s cash and short-term investments stands at US$21m , 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of MBII’s operating efficiency ratios such as ROA here.

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

With current liabilities at US$9.9m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.42x. However, a ratio greater than 3x may be considered high by some.

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Is MBII’s debt level acceptable?

MBII is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since MBII is presently loss-making, sustainability of its current state of operations becomes a concern. 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:

MBII’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 MBII’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for MBII’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Marrone Bio Innovations to get a better picture of the small-cap by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for MBII’s future growth? Take a look at our free research report of analyst consensus for MBII’s outlook.
2. Historical Performance: What has MBII’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.
3. 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 [email protected].