While small-cap stocks, such as Aspinwall and Company Limited (NSEI:ASPINWALL) with its market cap of ₹4.03B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. 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 recommend you dig deeper yourself into ASPINWALL here.
Does ASPINWALL generate enough cash through operations?
ASPINWALL has shrunken its total debt levels in the last twelve months, from ₹389.7M to ₹259.5M – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at ₹114.3M for investing into the business. Moreover, ASPINWALL has produced ₹237.4M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 91.48%, signalling that ASPINWALL’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ASPINWALL’s case, it is able to generate 0.91x cash from its debt capital.
Does ASPINWALL’s liquid assets cover its short-term commitments?
At the current liabilities level of ₹658.1M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.06x. Usually, for food companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does ASPINWALL face the risk of succumbing to its debt-load?
With debt at 20.80% of equity, ASPINWALL may be thought of as appropriately levered. ASPINWALL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if ASPINWALL’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ASPINWALL, the ratio of 3.7x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving ASPINWALL ample headroom to grow its debt facilities.
Next Steps:
Are you a shareholder? ASPINWALL’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. In the future, its financial position may change. You should always be keeping on top of market expectations for ASPINWALL’s future growth on our free analysis platform.