Investors are always looking for growth in small-cap stocks like JBF Industries Limited (NSEI:JBFIND), with a market cap of ₹8.40B. However, an important fact which most ignore is: how financially healthy is the business? Since JBFIND is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into JBFIND here.
Does JBFIND generate an acceptable amount of cash through operations?
Over the past year, JBFIND has maintained its debt levels at around ₹110.14B comprising of short- and long-term debt. At this constant level of debt, JBFIND’s cash and short-term investments stands at ₹10.15B , ready to deploy into the business. Additionally, JBFIND has generated cash from operations of ₹9.52B in the last twelve months, resulting in an operating cash to total debt ratio of 8.65%, signalling that JBFIND’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In JBFIND’s case, it is able to generate 0.086x cash from its debt capital.
Can JBFIND pay its short-term liabilities?
With current liabilities at ₹66.67B, it seems that the business has not been able to meet these commitments with a current assets level of ₹54.70B, leading to a 0.82x current account ratio. which is under the appropriate industry ratio of 3x.
Can JBFIND service its debt comfortably?
JBFIND is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since JBFIND 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:
JBFIND’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure JBFIND has company-specific issues impacting its capital structure decisions. You should continue to research JBF Industries to get a more holistic view of the stock by looking at:
- Historical Performance: What has JBFIND’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.
- 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.