Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as MphasiS Limited (NSEI:MPHASIS), with a market capitalization of ₹152.75B, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at MPHASIS’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into MPHASIS here. See our latest analysis for MphasiS
Does MPHASIS generate an acceptable amount of cash through operations?
MPHASIS has shrunken its total debt levels in the last twelve months, from ₹4,607.6M to ₹2,601.6M , which comprises of short- and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at ₹28,845.4M , ready to deploy into the business. Moreover, MPHASIS has produced cash from operations of ₹6,641.1M in the last twelve months, resulting in an operating cash to total debt ratio of 255.27%, signalling that MPHASIS’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MPHASIS’s case, it is able to generate 2.55x cash from its debt capital.
Can MPHASIS meet its short-term obligations with the cash in hand?
Looking at MPHASIS’s most recent ₹10,886.0M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of ₹44,492.0M, with a current ratio of 4.09x. Though, a ratio greater than 3x may be considered as too high, as MPHASIS could be holding too much capital in a low-return investment environment.
Does MPHASIS face the risk of succumbing to its debt-load?
With debt at 7.82% of equity, MPHASIS may be thought of as having low leverage. This range is considered safe as MPHASIS is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
MPHASIS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how MPHASIS has been performing in the past. I recommend you continue to research MphasiS to get a more holistic view of the stock by looking at: