While small-cap stocks, such as Shradha Infraprojects (Nagpur) Limited (NSE:SHRADHA) with its market cap of ₹388.1m, 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, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I suggest you dig deeper yourself into SHRADHA here.
Does SHRADHA produce enough cash relative to debt?
SHRADHA’s debt levels surged from ₹92.0m to ₹270.5m over the last 12 months , which is mainly comprised of near term debt. With this increase in debt, SHRADHA currently has ₹125.2m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of SHRADHA’s operating efficiency ratios such as ROA here.
Can SHRADHA pay its short-term liabilities?
At the current liabilities level of ₹401.5m liabilities, the company has been able to meet these commitments with a current assets level of ₹938.8m, leading to a 2.34x current account ratio. Usually, for Real Estate companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does SHRADHA face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 40.9%, SHRADHA can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Next Steps:
At its current level of cash flow coverage, SHRADHA has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for SHRADHA’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Shradha Infraprojects (Nagpur) to get a better picture of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for SHRADHA’s future growth? Take a look at our free research report of analyst consensus for SHRADHA’s outlook.
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Historical Performance: What has SHRADHA’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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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 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.