Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Larsen & Toubro Infotech Limited (NSE:LTI), with a market cap of ₹310.6b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. LTI’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Larsen & Toubro Infotech’s financial health, so you should conduct further analysis into LTI here.
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Is LTI’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For Larsen & Toubro Infotech, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with LTI, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does LTI’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Larsen & Toubro Infotech has no solvency issues, which is used to describe 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. At the current liabilities level of ₹14.9b liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.09x. Having said that, many consider anything above 3x to be quite high and could mean that LTI has too much idle capital in low-earning investments.
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LTI has no debt as well as ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and its investors, though, some level of debt may also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for LTI’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Larsen & Toubro Infotech to get a more holistic view of the stock by looking at: