Investors are always looking for growth in small-cap stocks like Total Transport Systems Limited (NSEI:TOTAL), with a market cap of ₹673.81M. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into TOTAL here.
Does TOTAL generate enough cash through operations?
TOTAL’s debt levels surged from ₹135.0M to ₹177.8M over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at ₹23.5M , ready to deploy into the business. Though its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. 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 TOTAL’s operating efficiency ratios such as ROA here.
Does TOTAL’s liquid assets cover its short-term commitments?
At the current liabilities level of ₹337.9M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of ₹425.1M, with a current ratio of 1.26x. Usually, for air freight and logistics companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does TOTAL face the risk of succumbing to its debt-load?
With total debt exceeding equities, TOTAL is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether TOTAL is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interets and tax (EBIT) at least three times its net interest payments is considered financially sound. In TOTAL’s, case, the ratio of 3.5x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
Are you a shareholder? At its current level of cash flow coverage, TOTAL has room for improvement to better cushion for events which may require debt repayment. Though, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that its financial position may be different. I suggest keeping on top of market expectations for TOTAL’s future growth on our free analysis platform.