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While small-cap stocks, such as Syngene International Limited (NSEI:SYNGENE) with its market cap of ₹117.27B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Life Sciences companies, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into SYNGENE here.
Does SYNGENE generate enough cash through operations?
SYNGENE’s debt levels have fallen from ₹8.91B to ₹8.33B over the last 12 months , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at ₹10.68B , ready to deploy into the business. Additionally, SYNGENE has produced cash from operations of ₹3.98B during the same period of time, leading to an operating cash to total debt ratio of 47.76%, meaning that SYNGENE’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In SYNGENE’s case, it is able to generate 0.48x cash from its debt capital.
Can SYNGENE meet its short-term obligations with the cash in hand?
Looking at SYNGENE’s most recent ₹5.99B liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.54x. For Life Sciences companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does SYNGENE face the risk of succumbing to its debt-load?
SYNGENE is a relatively highly levered company with a debt-to-equity of 46.14%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
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Although SYNGENE’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure SYNGENE has company-specific issues impacting its capital structure decisions. You should continue to research Syngene International to get a more holistic view of the small-cap by looking at: