Investors are always looking for growth in small-cap stocks like Country Condo’S Limited (NSEI:COUNCODOS), with a market cap of ₹356.95M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into COUNCODOS here.
How does COUNCODOS’s operating cash flow stack up against its debt?
COUNCODOS’s debt levels have fallen from ₹1.8M to ₹1.1M over the last 12 months – this includes both the current and long-term debt. With this debt repayment, COUNCODOS’s cash and short-term investments stands at ₹44.0M for investing into the business. On top of this, COUNCODOS has produced ₹17.5M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 16.38x, meaning that COUNCODOS’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In COUNCODOS’s case, it is able to generate 16.38x cash from its debt capital.
Can COUNCODOS pay its short-term liabilities?
With current liabilities at ₹92.4M 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 2.36x. Usually, for real estate 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 COUNCODOS’s level of debt at an acceptable level?
With debt at 1.57% of equity, COUNCODOS may be thought of as having low leverage. This range is considered safe as COUNCODOS is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether COUNCODOS is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interets and tax (EBIT) at least three times its net interest payments is considered financially sound. In COUNCODOS’s, case, the ratio of 35.58x suggests that interest is excessively covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
Are you a shareholder? COUNCODOS’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 will be able to pay all of its upcoming liabilities from its current short-term assets. Moving forward, its financial position may be different. I suggest researching market expectations for COUNCODOS’s future growth on our free analysis platform.