Is Yatra Online Inc's (NASDAQ:YTRA) Balance Sheet A Threat To Its Future?

Yatra Online Inc (NASDAQ:YTRA) is a small-cap stock with a market capitalization of US$222m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Companies operating in the Online Retail industry facing headwinds from current disruption, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. 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’d encourage you to dig deeper yourself into YTRA here.

How much cash does YTRA generate through its operations?

Over the past year, YTRA has reduced its debt from ₹1.8b to ₹1.4b , which includes long-term debt. With this debt payback, YTRA's cash and short-term investments stands at ₹5.0b , ready to deploy 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 assess some of YTRA’s operating efficiency ratios such as ROA here.

Can YTRA pay its short-term liabilities?

With current liabilities at ₹11b, the company has been able to meet these commitments with a current assets level of ₹11b, leading to a 1.05x current account ratio. Generally, for Online Retail companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Is YTRA’s debt level acceptable?

With a debt-to-equity ratio of 46%, YTRA 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. Though, since YTRA is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

Although YTRA’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around YTRA's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure YTRA has company-specific issues impacting its capital structure decisions. You should continue to research Yatra Online to get a more holistic view of the small-cap by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for YTRA’s future growth? Take a look at our free research report of analyst consensus for YTRA’s outlook.
2. Valuation: What is YTRA 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 YTRA is currently mispriced by the market.
3. 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.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.