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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Glenmark Pharmaceuticals Limited (NSE:GLENMARK), with a market cap of ₹165.38b, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at GLENMARK’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into GLENMARK here. Check out our latest analysis for Glenmark Pharmaceuticals
How much cash does GLENMARK generate through its operations?
GLENMARK’s debt levels have fallen from ₹47.24b to ₹44.37b over the last 12 months – this includes both the current and long-term debt. With this debt payback, GLENMARK’s cash and short-term investments stands at ₹16.20b , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of GLENMARK’s operating efficiency ratios such as ROA here.
Does GLENMARK’s liquid assets cover its short-term commitments?
Looking at GLENMARK’s most recent ₹32.88b liabilities, it seems that the business has been able to meet these commitments with a current assets level of ₹69.89b, leading to a 2.13x current account ratio. For Pharmaceuticals companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Is GLENMARK’s debt level acceptable?
GLENMARK is a relatively highly levered company with a debt-to-equity of 79.39%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In GLENMARK’s case, the ratio of 4.74x suggests that interest is appropriately 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.