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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Ambuja Cements Limited (NSE:AMBUJACEM) with a market-capitalization of ₹447.37b, rarely draw their attention. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at AMBUJACEM’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AMBUJACEM here.
Check out our latest analysis for Ambuja Cements
How much cash does AMBUJACEM generate through its operations?
AMBUJACEM has built up its total debt levels in the last twelve months, from ₹161.4m to ₹302.4m , which comprises of short- and long-term debt. With this rise in debt, AMBUJACEM’s cash and short-term investments stands at ₹51.16b for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 AMBUJACEM’s operating efficiency ratios such as ROA here.
Does AMBUJACEM’s liquid assets cover its short-term commitments?
Looking at AMBUJACEM’s most recent ₹85.14b liabilities, it seems that the business has been able to meet these obligations given the level of current assets of ₹114.21b, with a current ratio of 1.34x. Generally, for Basic Materials companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can AMBUJACEM service its debt comfortably?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. The good news for investors is that Ambuja Cements has virtually no debt. This means it has been running its business utilising funding from primarily its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with AMBUJACEM, and the company has plenty of headroom and ability to raise debt should it need to in the future.
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Although AMBUJACEM’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for AMBUJACEM’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Ambuja Cements to get a better picture of the stock by looking at: