Mid-caps stocks, like ACC Limited (NSEI:ACC) with a market capitalization of ₹328.37B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. I recommend you look at the following hurdles to assess ACC’s financial health. View our latest analysis for ACC

Does ACC face the risk of succumbing to its debt-load?

While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. For ACC, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Whether it’s an issue of access to debt or management choosing not to borrow, investors risk associated with debt issues is virtually non-existent with ACC.

Can ACC pay its short-term liabilities?

Since ACC doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues. Solvency is word for the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. Our analysis shows that ACC does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.

Next Steps:

Are you a shareholder? ACC has no debt as well as ample cash to cover its near-term liabilities such as salary and supplier payments. While it’s safe operations might reduce risk for the company and investors, some degree of debt could also boost earnings growth and operational efficiency. Given that ACC’s financial situation could change, I recommend researching market expectations for ACC’s future growth on our free analysis platform.

Are you a potential investor? Although investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. ACC’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.