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Investors are always looking for growth in small-cap stocks like SKIL Infrastructure Limited (NSEI:SKIL), with a market cap of ₹5.86B. However, an important fact which most ignore is: how financially healthy is the business? Since SKIL is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into SKIL here.
Does SKIL generate an acceptable amount of cash through operations?
SKIL’s debt level has been constant at around ₹31.27B over the previous year comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at ₹635.40M , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 assess some of SKIL’s operating efficiency ratios such as ROA here.
Does SKIL’s liquid assets cover its short-term commitments?
With current liabilities at ₹13.73B, it appears that the company has not been able to meet these commitments with a current assets level of ₹12.00B, leading to a 0.87x current account ratio. which is under the appropriate industry ratio of 3x.
Is SKIL’s debt level acceptable?
With total debt exceeding equities, SKIL is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since SKIL is currently loss-making, there’s a question of sustainability of its current operations. 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:
SKIL’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how SKIL has been performing in the past. You should continue to research SKIL Infrastructure to get a more holistic view of the stock by looking at: