Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

While small-cap stocks, such as Sanghvi Movers Limited (NSE:SANGHVIMOV) with its market cap of ₹4.7b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that SANGHVIMOV is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, these checks don't give you a full picture, so I suggest you dig deeper yourself into SANGHVIMOV here.

SANGHVIMOV’s Debt (And Cash Flows)

SANGHVIMOV has shrunk its total debt levels in the last twelve months, from ₹5.4b to ₹4.4b – this includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at ₹45m to keep the business going. Additionally, SANGHVIMOV has produced cash from operations of ₹1.3b in the last twelve months, leading to an operating cash to total debt ratio of 29%, signalling that SANGHVIMOV’s current level of operating cash is high enough to cover debt.

Can SANGHVIMOV meet its short-term obligations with the cash in hand?

Looking at SANGHVIMOV’s ₹1.5b in current liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of ₹1.2b, leading to a current ratio of 0.77x. The current ratio is the number you get when you divide current assets by current liabilities.

Is SANGHVIMOV’s debt level acceptable?

With debt reaching 61% of equity, SANGHVIMOV may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since SANGHVIMOV is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

Although SANGHVIMOV’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for SANGHVIMOV's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Sanghvi Movers to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for SANGHVIMOV’s future growth? Take a look at our free research report of analyst consensus for SANGHVIMOV’s outlook.

2. Valuation: What is SANGHVIMOV worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SANGHVIMOV is currently mispriced by the market.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.