While small-cap stocks, such as JBF Industries Limited (NSEI:JBFIND) with its market cap of ₹16.25B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that JBFIND is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into JBFIND here.
Does JBFIND generate enough cash through operations?
Over the past year, JBFIND has maintained its debt levels at around ₹110,141.3M made up of current and long term debt. At this constant level of debt, JBFIND currently has ₹10,153.9M remaining in cash and short-term investments , ready to deploy into the business. Moreover, JBFIND has produced ₹9,522.2M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 8.65%, indicating that JBFIND’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In JBFIND’s case, it is able to generate 0.09x cash from its debt capital.
Can JBFIND pay its short-term liabilities?
At the current liabilities level of ₹66,668.1M liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.82x, which is below the prudent industry ratio of 3x.
Does JBFIND face the risk of succumbing to its debt-load?Since total debt levels have outpaced equities, JBFIND is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, 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.
JBFIND’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for JBFIND’s financial health. Other important fundamentals need to be considered alongside. You should continue to research JBF Industries to get a better picture of the stock by looking at:
- 1. 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.
- 2. 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.