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Hindustan Copper Limited (NSEI:HINDCOPPER) is a small-cap stock with a market capitalization of ₹71.38B. 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 vital, 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. However, this commentary is still very high-level, so I recommend you dig deeper yourself into HINDCOPPER here.
Does HINDCOPPER generate enough cash through operations?
Over the past year, HINDCOPPER has ramped up its debt from ₹2.07B to ₹4.72B , which comprises of short- and long-term debt. With this growth in debt, HINDCOPPER currently has ₹1.71B remaining in cash and short-term investments , 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 HINDCOPPER’s operating efficiency ratios such as ROA here.
Does HINDCOPPER’s liquid assets cover its short-term commitments?
With current liabilities at ₹14.11B, the company has been able to meet these commitments with a current assets level of ₹19.74B, leading to a 1.4x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does HINDCOPPER face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 32.41%, HINDCOPPER’s debt level may be seen as prudent. HINDCOPPER is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
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HINDCOPPER’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure HINDCOPPER has company-specific issues impacting its capital structure decisions. You should continue to research Hindustan Copper to get a better picture of the stock by looking at: