KC.P. Sugar and Industries Corporation Limited (NSEI:KCPSUGIND) is a small-cap stock with a market capitalization of ₹2.37B. 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? So, understanding the company’s financial health becomes crucial, 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’d encourage you to dig deeper yourself into KCPSUGIND here.
Does KCPSUGIND generate an acceptable amount of cash through operations?
KCPSUGIND has built up its total debt levels in the last twelve months, from ₹1.07B to ₹1.43B , which is made up of current and long term debt. With this growth in debt, KCPSUGIND’s cash and short-term investments stands at ₹988.87M for investing into the business. On top of this, KCPSUGIND has produced cash from operations of ₹584.29M over the same time period, resulting in an operating cash to total debt ratio of 40.91%, meaning that KCPSUGIND’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In KCPSUGIND’s case, it is able to generate 0.41x cash from its debt capital.
Can KCPSUGIND pay its short-term liabilities?
Looking at KCPSUGIND’s most recent ₹2.03B liabilities, it appears that the company has been able to meet these commitments with a current assets level of ₹3.79B, leading to a 1.87x current account ratio. Generally, for Food companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is KCPSUGIND’s debt level acceptable?
With debt reaching 54.57% of equity, KCPSUGIND may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Next Steps:
KCPSUGIND’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around KCPSUGIND’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for KCPSUGIND’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research K.C.P. Sugar and Industries to get a more holistic view of the small-cap by looking at: