Harita Seating Systems Limited (NSEI:HARITASEAT) is a small-cap stock with a market capitalization of ₹7.64B. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into HARITASEAT here.
Does HARITASEAT generate enough cash through operations?
Over the past year, HARITASEAT has ramped up its debt from ₹50.21M to ₹113.06M – this includes both the current and long-term debt. With this rise in debt, HARITASEAT’s cash and short-term investments stands at ₹212.26M , ready to deploy into the business. On top of this, HARITASEAT has produced cash from operations of ₹418.93M over the same time period, leading to an operating cash to total debt ratio of 370.54%, signalling that HARITASEAT’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HARITASEAT’s case, it is able to generate 3.71x cash from its debt capital.
Does HARITASEAT’s liquid assets cover its short-term commitments?
Looking at HARITASEAT’s most recent ₹1.61B 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 1.35x. Usually, for Auto Components companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is HARITASEAT’s debt level acceptable?
HARITASEAT’s level of debt is low relative to its total equity, at 6.02%. This range is considered safe as HARITASEAT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether HARITASEAT 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 HARITASEAT’s, case, the ratio of 163x suggests that interest is comfortably 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.