While small-cap stocks, such as Cyient Limited (NSEI:CYIENT) with its market cap of ₹65.53B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Software industry, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into CYIENT here.
How does CYIENT’s operating cash flow stack up against its debt?
CYIENT’s debt level has been constant at around ₹2,114.0M over the previous year comprising of short- and long-term debt. At this constant level of debt, CYIENT’s cash and short-term investments stands at ₹9,706.0M for investing into the business. Additionally, CYIENT has produced cash from operations of ₹4,199.0M over the same time period, resulting in an operating cash to total debt ratio of 198.63%, indicating that CYIENT’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CYIENT’s case, it is able to generate 1.99x cash from its debt capital.
Can CYIENT pay its short-term liabilities?
At the current liabilities level of ₹8,291.0M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of ₹20,713.0M, with a current ratio of 2.5x. For Software companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does CYIENT face the risk of succumbing to its debt-load?
With debt at 8.09% of equity, CYIENT may be thought of as having low leverage. CYIENT is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
CYIENT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how CYIENT has been performing in the past. You should continue to research Cyient to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for CYIENT’s future growth? Take a look at our free research report of analyst consensus for CYIENT’s outlook.