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The size of Coal India Limited (NSEI:COALINDIA), a ₹1.66T large-cap, often attracts investors seeking a reliable investment in the stock market. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the key to extending previous success is in the health of the company’s financials. I will provide an overview of Coal India’s financial liquidity and leverage to give you an idea of Coal India’s position to take advantage of potential acquisitions or comfortably endure future downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into COALINDIA here. Check out our latest analysis for Coal India
Does COALINDIA produce enough cash relative to debt?
COALINDIA has built up its total debt levels in the last twelve months, from ₹11.99B to ₹30.15B , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at ₹317.43B , ready to deploy into the business. Moreover, COALINDIA has produced cash from operations of ₹158.47B in the last twelve months, resulting in an operating cash to total debt ratio of 525.69%, indicating that COALINDIA’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In COALINDIA’s case, it is able to generate 5.26x cash from its debt capital.
Can COALINDIA meet its short-term obligations with the cash in hand?
At the current liabilities level of ₹422.32B liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.62x. Usually, for Oil and Gas companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is COALINDIA’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. COALINDIA’s level of debt is low relative to its total equity, at 1.49%. COALINDIA is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
COALINDIA’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure COALINDIA has company-specific issues impacting its capital structure decisions. I recommend you continue to research Coal India to get a more holistic view of the stock by looking at: