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Is MaxCyte, Inc. (LON:MXCT) A Financially Sound Company?

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While small-cap stocks, such as MaxCyte, Inc. (LON:MXCT) with its market cap of UK£74m, 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 MXCT is not presently profitable, it’s crucial to assess the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into MXCT here.

Does MXCT Produce Much Cash Relative To Its Debt?

MXCT has sustained its debt level by about US$5.1m over the last 12 months which accounts for long term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$14m to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of MXCT’s operating efficiency ratios such as ROA here.

Can MXCT pay its short-term liabilities?

With current liabilities at US$6.6m, it appears that the company has been able to meet these obligations given the level of current assets of US$22m, with a current ratio of 3.42x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered high by some.

AIM:MXCT Historical Debt, July 10th 2019
AIM:MXCT Historical Debt, July 10th 2019

Is MXCT’s debt level acceptable?

With debt reaching 41% of equity, MXCT may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since MXCT is presently loss-making, 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:

MXCT’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 MXCT'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 MXCT has company-specific issues impacting its capital structure decisions. You should continue to research MaxCyte to get a more holistic view of the small-cap by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for MXCT’s future growth? Take a look at our free research report of analyst consensus for MXCT’s outlook.

  2. Historical Performance: What has MXCT'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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.