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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like NMDC Limited (NSEI:NMDC), with a market cap of ₹389.00B, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at NMDC’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into NMDC here. Check out our latest analysis for NMDC
Can NMDC service its debt comfortably?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For NMDC, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with NMDC, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can NMDC meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, NMDC has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at ₹25.75B, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.1x. However, a ratio greater than 3x may be considered as too high, as NMDC could be holding too much capital in a low-return investment environment.
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NMDC has zero-debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, however, some level of debt could also ramp up earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how NMDC has performed in the past. I suggest you continue to research NMDC to get a more holistic view of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for NMDC’s future growth? Take a look at our free research report of analyst consensus for NMDC’s outlook.
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Valuation: What is NMDC 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 NMDC is currently mispriced by the market.
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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 pass 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.