Bang Overseas Limited (NSE:BANG) is a small-cap stock with a market capitalization of ₹650m. 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? So, understanding the company’s financial health becomes essential, since poor capital management may bring about 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, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into BANG here.

How much cash does BANG generate through its operations?

BANG’s debt levels have fallen from ₹443m to ₹378m over the last 12 months , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at ₹107m for investing into the business. On top of this, BANG has produced cash from operations of ₹67m in the last twelve months, leading to an operating cash to total debt ratio of 18%, indicating that BANG’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 BANG’s case, it is able to generate 0.18x cash from its debt capital.

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

With current liabilities at ₹758m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.64x. Usually, for Luxury companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Is BANG’s debt level acceptable?

With a debt-to-equity ratio of 45%, BANG can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.

Next Steps:

BANG’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 will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for BANG’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Bang Overseas to get a more holistic view of the stock by looking at:

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

2. Historical Performance: What has BANG’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 editorial-team@simplywallst.com.