Investors are always looking for growth in small-cap stocks like Jet Knitwears Limited (NSE:JETKNIT), with a market cap of ₹304.40m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into JETKNIT here.
Does JETKNIT produce enough cash relative to debt?
Over the past year, JETKNIT has reduced its debt from ₹118.17m to ₹91.89m – this includes both the current and long-term debt. With this reduction in debt, JETKNIT currently has ₹12.72m remaining in cash and short-term investments for investing 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.
Can JETKNIT meet its short-term obligations with the cash in hand?
With current liabilities at ₹129.48m, it seems that the business has been able to meet these commitments with a current assets level of ₹221.38m, leading to a 1.71x current account ratio. Usually, for Luxury companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is JETKNIT’s debt level acceptable?JETKNIT is a relatively highly levered company with a debt-to-equity of 76.91%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if JETKNIT’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For JETKNIT, the ratio of 2.14x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
JETKNIT’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. However, the company exhibits proper management of current assets and upcoming liabilities. 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 more holistic view 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.
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 email@example.com.