Gujarat NRE Coke Limited (NSEI:GUJNRECOKE) is a small-cap stock with a market capitalization of ₹2.57B. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that GUJNRECOKE is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into GUJNRECOKE here.
How does GUJNRECOKE’s operating cash flow stack up against its debt?
GUJNRECOKE’s debt levels surged from ₹28,760.5M to ₹30,816.3M over the last 12 months , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at ₹109.4M for investing into the business. However, 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 take a look at some of GUJNRECOKE’s operating efficiency ratios such as ROA here.
Can GUJNRECOKE pay its short-term liabilities?
At the current liabilities level of ₹21,401.2M liabilities, the company has not been able to meet these commitments with a current assets level of ₹6,887.2M, leading to a 0.32x current account ratio. which is under the appropriate industry ratio of 3x.
Does GUJNRECOKE face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, GUJNRECOKE is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since GUJNRECOKE is currently loss-making, 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? GUJNRECOKE’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 struggle to meet its near term liabilities should an adverse event occur. Going forward, its financial position may be different. You should always be keeping abreast of market expectations for GUJNRECOKE’s future growth on our free analysis platform.