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TT. Limited (NSEI:TTL) is a small-cap stock with a market capitalization of ₹1.76B. 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? Given that TTL is not presently profitable, 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, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into TTL here.
Does TTL generate enough cash through operations?
Over the past year, TTL has maintained its debt levels at around ₹3.14B – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at ₹15.21M for investing into the business. On top of this, TTL has produced cash from operations of ₹164.85M over the same time period, leading to an operating cash to total debt ratio of 5.25%, indicating that TTL’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires a positive net income. In TTL’s case, it is able to generate 0.052x cash from its debt capital.
Does TTL’s liquid assets cover its short-term commitments?
At the current liabilities level of ₹1.76B liabilities, it seems that the business is not able to meet these obligations given the level of current assets of ₹1.68B, with a current ratio of 0.96x below the prudent level of 3x.
Can TTL service its debt comfortably?
With total debt exceeding equities, TTL 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 TTL is presently unprofitable, 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:
With a high level of debt on its balance sheet, TTL could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for TTL to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure TTL has company-specific issues impacting its capital structure decisions. I recommend you continue to research T.T to get a more holistic view of the stock by looking at: