While small-cap stocks, such as Nitesh Estates Limited (NSEI:NITESHEST) with its market cap of ₹1.73B, 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 NITESHEST is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into NITESHEST here.
Does NITESHEST generate an acceptable amount of cash through operations?
NITESHEST’s debt levels have fallen from ₹12,052.9M to ₹9,994.3M over the last 12 months , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at ₹61.7M for investing into the business. Though 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 NITESHEST’s operating efficiency ratios such as ROA here.
Can NITESHEST pay its short-term liabilities?
At the current liabilities level of ₹13,327.7M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of ₹12,077.6M, leading to a 0.91x current account ratio. which is under the appropriate industry ratio of 3x.
Does NITESHEST face the risk of succumbing to its debt-load?
With total debt exceeding equities, NITESHEST 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 NITESHEST is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
Are you a shareholder? NITESHEST’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Moving forward, its financial position may change. I suggest researching market expectations for NITESHEST’s future growth on our free analysis platform.