Bartronics India Limited (NSEI:BARTRONICS) is a small-cap stock with a market capitalization of ₹325.17M. 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? Companies operating in the Electronic industry, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I recommend you dig deeper yourself into BARTRONICS here.
Does BARTRONICS generate an acceptable amount of cash through operations?
Over the past year, BARTRONICS has maintained its debt levels at around ₹7.23B comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at ₹65.27M for investing into the business. Moreover, BARTRONICS has generated ₹35.66M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 0.49%, meaning that BARTRONICS’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In BARTRONICS’s case, it is able to generate 0.0049x cash from its debt capital.
Does BARTRONICS’s liquid assets cover its short-term commitments?
At the current liabilities level of ₹14.48B liabilities, it appears that the company is not able to meet these obligations given the level of current assets of ₹12.27B, with a current ratio of 0.85x below the prudent level of 3x.
Is BARTRONICS’s debt level acceptable?
BARTRONICS 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. But since BARTRONICS is currently unprofitable, 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:
BARTRONICS’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how BARTRONICS has been performing in the past. I recommend you continue to research Bartronics India to get a more holistic view of the stock by looking at: