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Investors are always looking for growth in small-cap stocks like Autoline Industries Limited (NSEI:AUTOIND), with a market cap of ₹1.30B. However, an important fact which most ignore is: how financially healthy is the business? Given that AUTOIND is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into AUTOIND here.
Does AUTOIND generate an acceptable amount of cash through operations?
AUTOIND’s debt levels surged from ₹1.98B to ₹2.19B over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, AUTOIND currently has ₹39.60M remaining in cash and short-term investments , 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of AUTOIND’s operating efficiency ratios such as ROA here.
Can AUTOIND pay its short-term liabilities?
At the current liabilities level of ₹2.07B liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.16x. Usually, for Auto Components companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does AUTOIND face the risk of succumbing to its debt-load?
With total debt exceeding equities, AUTOIND is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since AUTOIND is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
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AUTOIND’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how AUTOIND has been performing in the past. You should continue to research Autoline Industries to get a more holistic view of the stock by looking at: