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ITC Limited (NSE:ITC), a large-cap worth ₹3.24t, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an adundance of stock in the public market available for trading. These companies are resilient in times of low liquidity and are relatively unimpacted by interest rate hikes. Using the most recent data for ITC, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment. See our latest analysis for ITC
Does ITC produce enough cash relative to debt?
ITC has shrunken its total debt levels in the last twelve months, from ₹457.20m to ₹288.50m – this includes both the current and long-term debt. With this debt payback, ITC currently has ₹148.22b remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of ITC’s operating efficiency ratios such as ROA here.
Does ITC’s liquid assets cover its short-term commitments?
With current liabilities at ₹92.50b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.85x. Usually, for Tobacco 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.
Is ITC’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. For ITC, investors should not worry about its debt levels because the company has very, very little on its balance sheet! This means it has been running its business utilising funding from primarily its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with ITC, and the company has plenty of headroom and ability to raise debt should it need to in the future.
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ITC’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how ITC has been performing in the past. I suggest you continue to research ITC to get a better picture of the stock by looking at: