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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Tata Communications Limited (NSEI:TATACOMM), with a market cap of ₹176.90B, are often out of the spotlight. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine TATACOMM’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into TATACOMM here. See our latest analysis for Tata Communications
Can TATACOMM service its debt comfortably?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For Tata Communications, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with TATACOMM, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does TATACOMM’s liquid assets cover its short-term commitments?
Since Tata Communications doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at ₹83.92B, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.62x, which is below the prudent industry ratio of 3x.
Next Steps:
Although TATACOMM has no debt on its balance sheet, it still has to meet near-term commitments to meet. As shareholders, you should try and determine whether this strategy is justified for TATACOMM, especially if meeting short-term obligations lead to more pressing issues. I admit this is a fairly basic analysis for TATACOMM’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Tata Communications to get a better picture of the mid-cap by looking at: