Investors are always looking for growth in small-cap stocks like Pushpanjali Realms and Infratech Limited (NSE:PUSHPREALM), with a market cap of ₹395.4m. 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 a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into PUSHPREALM here.

How much cash does PUSHPREALM generate through its operations?

PUSHPREALM has shrunken its total debt levels in the last twelve months, from ₹332.1m to ₹247.8m , which is made up of current and long term debt. With this debt repayment, the current cash and short-term investment levels stands at ₹23.5m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of PUSHPREALM’s operating efficiency ratios such as ROA here.

Does PUSHPREALM’s liquid assets cover its short-term commitments?

With current liabilities at ₹427.2m, it seems that the business has been able to meet these commitments with a current assets level of ₹774.5m, leading to a 1.81x current account ratio. Generally, for Real Estate companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Can PUSHPREALM service its debt comfortably?

With a debt-to-equity ratio of 76.0%, PUSHPREALM can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether PUSHPREALM is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In PUSHPREALM’s, case, the ratio of 45.09x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as PUSHPREALM’s high interest coverage is seen as responsible and safe practice.

Next Steps:

PUSHPREALM’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. 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 PUSHPREALM’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Pushpanjali Realms and Infratech to get a more holistic view of the stock by looking at:

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

2. Historical Performance: What has PUSHPREALM’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.