In This Article:
SRS Limited (NSEI:SRSLTD) is a small-cap stock with a market capitalization of ₹164.36M. 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? Since SRSLTD is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into SRSLTD here.
Does SRSLTD generate enough cash through operations?
SRSLTD has built up its total debt levels in the last twelve months, from ₹7.17B to ₹8.84B – this includes both the current and long-term debt. With this increase in debt, SRSLTD’s cash and short-term investments stands at ₹87.07M , 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 examine some of SRSLTD’s operating efficiency ratios such as ROA here.
Can SRSLTD pay its short-term liabilities?
At the current liabilities level of ₹11.52B liabilities, the company has been able to meet these obligations given the level of current assets of ₹14.15B, with a current ratio of 1.23x. For Luxury 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 SRSLTD’s debt level acceptable?
With total debt exceeding equities, SRSLTD 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 SRSLTD is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
SRSLTD’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 exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how SRSLTD has been performing in the past. You should continue to research SRS to get a better picture of the stock by looking at: