Investors are always looking for growth in small-cap stocks like Goldstone Technologies Limited (NSEI:GOLDTECH), with a market cap of ₹178.43M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the it industry, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into GOLDTECH here.
How does GOLDTECH’s operating cash flow stack up against its debt?
GOLDTECH has built up its total debt levels in the last twelve months, from ₹117.6M to ₹131.5M , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at ₹147.3M , ready to deploy into the business. However, 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. For this article’s sake, I won’t be looking at this today, but you can assess some of GOLDTECH’s operating efficiency ratios such as ROA here.
Can GOLDTECH pay its short-term liabilities?
With current liabilities at ₹220.5M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.17x. Usually, for it companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is GOLDTECH’s level of debt at an acceptable level?
With debt at 21.50% of equity, GOLDTECH may be thought of as appropriately levered. This range is considered safe as GOLDTECH is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for GOLDTECH, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? Although GOLDTECH’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. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may be different. I recommend keeping on top of market expectations for GOLDTECH’s future growth on our free analysis platform.