While small-cap stocks, such as Ramky Infrastructure Limited (NSEI:RAMKY) with its market cap of ₹13.57B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that RAMKY is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into RAMKY here.
Does RAMKY generate an acceptable amount of cash through operations?
Over the past year, RAMKY has maintained its debt levels at around ₹30,954.4M made up of current and long term debt. At this current level of debt, the current cash and short-term investment levels stands at ₹1,051.3M , ready to deploy into the business. Additionally, RAMKY has produced cash from operations of ₹3,753.8M in the last twelve months, leading to an operating cash to total debt ratio of 12.13%, meaning that RAMKY’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In RAMKY’s case, it is able to generate 0.12x cash from its debt capital.
Can RAMKY pay its short-term liabilities?
Looking at RAMKY’s most recent ₹29,826.1M liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.95x, which is below the prudent industry ratio of 3x.
Is RAMKY’s level of debt at an acceptable level?
Since total debt levels have outpaced equities, RAMKY is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since RAMKY is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
Are you a shareholder? With a high level of debt on its balance sheet, RAMKY could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for RAMKY to increase its operational efficiency. In addition to this, the company may struggle to meet its near term liabilities should an adverse event occur. Moving forward, its financial position may be different. I suggest researching market expectations for RAMKY’s future growth on our free analysis platform.