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Investors are always looking for growth in small-cap stocks like Cyient Limited (NSE:CYIENT), with a market cap of ₹79.44b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Software industry, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into CYIENT here.

Does CYIENT produce enough cash relative to debt?

CYIENT’s debt levels surged from ₹2.11b to ₹4.29b over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at ₹11.00b , ready to deploy into the business. Additionally, CYIENT has produced cash from operations of ₹2.76b in the last twelve months, resulting in an operating cash to total debt ratio of 64.4%, meaning that CYIENT’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CYIENT’s case, it is able to generate 0.64x cash from its debt capital.

Can CYIENT pay its short-term liabilities?

At the current liabilities level of ₹9.91b liabilities, the company has been able to meet these obligations given the level of current assets of ₹24.94b, with a current ratio of 2.52x. Generally, for Software companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can CYIENT service its debt comfortably?

With debt at 17.6% of equity, CYIENT may be thought of as appropriately levered. CYIENT is not taking on too much debt commitment, which may be constraining for future growth.

Next Steps:

CYIENT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for CYIENT’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Cyient to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for CYIENT’s future growth? Take a look at our free research report of analyst consensus for CYIENT’s outlook.

2. Valuation: What is CYIENT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CYIENT is currently mispriced by the market.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.