While small-cap stocks, such as Jai Corp Limited (NSEI:JAICORPLTD) with its market cap of ₹31.08B, 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 JAICORPLTD is not presently profitable, it’s vital to evaluate 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. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into JAICORPLTD here.
Does JAICORPLTD generate enough cash through operations?
JAICORPLTD has sustained its debt level by about ₹9,229.9M over the last 12 months comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at ₹1,687.7M , ready to deploy into the business. Additionally, JAICORPLTD has generated cash from operations of ₹856.4M in the last twelve months, leading to an operating cash to total debt ratio of 0.09x, meaning that JAICORPLTD’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In JAICORPLTD’s case, it is able to generate 0.09x cash from its debt capital.
Can JAICORPLTD pay its short-term liabilities?
With current liabilities at ₹9,513.9M liabilities, it seems that the business has not been able to meet these commitments with a current assets level of ₹6,826.7M, leading to a 0.72x current account ratio. which is under the appropriate industry ratio of 3x.
Is JAICORPLTD’s level of debt at an acceptable level?
With debt reaching 72.59% of equity, JAICORPLTD may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since JAICORPLTD is presently unprofitable, 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:
Are you a shareholder? JAICORPLTD’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Furthermore, the company may struggle to meet its near term liabilities should an adverse event occur. Given that JAICORPLTD’s financial situation may change. I suggest researching market expectations for JAICORPLTD’s future growth on our free analysis platform.