Investors are always looking for growth in small-cap stocks like Jet Knitwears Limited (NSEI:JETKNIT), with a market cap of ₹383.41M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. 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 recommend you dig deeper yourself into JETKNIT here.
Does JETKNIT generate enough cash through operations?
JETKNIT has shrunken its total debt levels in the last twelve months, from ₹118.17M to ₹91.89M – this includes both the current and long-term debt. With this reduction in debt, JETKNIT’s cash and short-term investments stands at ₹12.72M , 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of JETKNIT’s operating efficiency ratios such as ROA here.
Does JETKNIT’s liquid assets cover its short-term commitments?
With current liabilities at ₹129.48M, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.71x. For Luxury companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can JETKNIT service its debt comfortably?With debt reaching 76.91% of equity, JETKNIT may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether JETKNIT 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 JETKNIT’s, case, the ratio of 2.14x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
JETKNIT’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for JETKNIT’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Jet Knitwears to get a better picture of the stock by looking at:
- Historical Performance: What has JETKNIT’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.