Investors are always looking for growth in small-cap stocks like ABG Shipyard Limited (NSEI:ABGSHIP), with a market cap of ₹1.31B. However, an important fact which most ignore is: how financially healthy is the business? Since ABGSHIP is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into ABGSHIP here.
Does ABGSHIP generate an acceptable amount of cash through operations?
ABGSHIP has built up its total debt levels in the last twelve months, from ₹54,615.4M to ₹69,530.4M , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at ₹3,232.5M for investing into the business. However, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of ABGSHIP’s operating efficiency ratios such as ROA here.
Can ABGSHIP meet its short-term obligations with the cash in hand?
Looking at ABGSHIP’s most recent ₹71,894.1M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.3x. Generally, for machinery 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.
Does ABGSHIP face the risk of succumbing to its debt-load?With total debt exceeding equities, ABGSHIP 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. But since ABGSHIP 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.
Are you a shareholder? ABGSHIP’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that ABGSHIP’s financial situation may change. I suggest researching market expectations for ABGSHIP’s future growth on our free analysis platform.
Are you a potential investor? ABGSHIP’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. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I encourage you to continue your research by taking a look at ABGSHIP’s past performance analysis on our free platform to conclude on ABGSHIP’s financial health.