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While small-cap stocks, such as Aspinwall and Company Limited (NSE:ASPINWALL) with its market cap of ₹1.50b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into ASPINWALL here.
How does ASPINWALL’s operating cash flow stack up against its debt?
ASPINWALL’s debt levels surged from ₹259.5m to ₹690.3m over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, ASPINWALL’s cash and short-term investments stands at ₹92.6m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of ASPINWALL’s operating efficiency ratios such as ROA here.
Can ASPINWALL pay its short-term liabilities?
With current liabilities at ₹1.14b, it appears that the company has been able to meet these commitments with a current assets level of ₹1.79b, leading to a 1.58x current account ratio. For Food companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is ASPINWALL’s debt level acceptable?
ASPINWALL is a relatively highly levered company with a debt-to-equity of 50.5%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In ASPINWALL’s case, the ratio of 6.29x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving ASPINWALL ample headroom to grow its debt facilities.
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ASPINWALL’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for ASPINWALL’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Aspinwall to get a better picture of the stock by looking at: