While small-cap stocks, such as Lypsa Gems & Jewellery Limited (NSE:LYPSAGEMS) with its market cap of ₹323.14m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes vital, 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. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into LYPSAGEMS here.
Does LYPSAGEMS produce enough cash relative to debt?
Over the past year, LYPSAGEMS has maintained its debt levels at around ₹236.09m . At this constant level of debt, LYPSAGEMS currently has ₹12.99m remaining in cash and short-term investments , 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of LYPSAGEMS’s operating efficiency ratios such as ROA here.
Does LYPSAGEMS’s liquid assets cover its short-term commitments?
Looking at LYPSAGEMS’s most recent ₹1.53b liabilities, the company has been able to meet these obligations given the level of current assets of ₹2.68b, with a current ratio of 1.75x. Generally, for Luxury companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does LYPSAGEMS face the risk of succumbing to its debt-load?With a debt-to-equity ratio of 19.67%, LYPSAGEMS’s debt level may be seen as prudent. This range is considered safe as LYPSAGEMS is not taking on too much debt obligation, which may be constraining for future growth. We can test if LYPSAGEMS’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 LYPSAGEMS, the ratio of 216x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
LYPSAGEMS’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 proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how LYPSAGEMS has been performing in the past. I recommend you continue to research Lypsa Gems & Jewellery to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LYPSAGEMS’s future growth? Take a look at our free research report of analyst consensus for LYPSAGEMS’s outlook.
- Historical Performance: What has LYPSAGEMS’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 pass 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 firstname.lastname@example.org.