Investors are always looking for growth in small-cap stocks like Rico Auto Industries Limited (NSEI:RICOAUTO), with a market cap of ₹11.06B. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into RICOAUTO here.
Does RICOAUTO generate an acceptable amount of cash through operations?
Over the past year, RICOAUTO has maintained its debt levels at around ₹2.36B made up of current and long term debt. At this constant level of debt, RICOAUTO currently has ₹147.70M remaining in cash and short-term investments , ready to deploy into the business. Additionally, RICOAUTO has produced cash from operations of ₹787.60M over the same time period, leading to an operating cash to total debt ratio of 33.31%, signalling that RICOAUTO’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In RICOAUTO’s case, it is able to generate 0.33x cash from its debt capital.
Does RICOAUTO’s liquid assets cover its short-term commitments?
At the current liabilities level of ₹3.46B liabilities, it seems that the business has been able to meet these obligations given the level of current assets of ₹3.83B, with a current ratio of 1.11x. Generally, for Auto Components companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is RICOAUTO’s debt level acceptable?With debt at 35.92% of equity, RICOAUTO may be thought of as appropriately levered. This range is considered safe as RICOAUTO is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether RICOAUTO is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In RICOAUTO’s, case, the ratio of 15.29x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving RICOAUTO ample headroom to grow its debt facilities.
RICOAUTO has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for RICOAUTO’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Rico Auto Industries to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for RICOAUTO’s future growth? Take a look at our free research report of analyst consensus for RICOAUTO’s outlook.
- 2. Historical Performance: What has RICOAUTO’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.
- 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.