Investors are always looking for growth in small-cap stocks like Opal Luxury Time Products Limited (NSEI:OPAL), with a market cap of ₹359.39M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Consumer Durables industry facing headwinds from current disruption, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into OPAL here.
Does OPAL generate enough cash through operations?
OPAL’s debt level has been constant at around ₹83.90M over the previous year – this includes both the current and long-term debt. At this current level of debt, OPAL currently has ₹5.12M remaining in cash and short-term investments for investing into the business. Additionally, OPAL has generated ₹19.08M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 22.74%, signalling that OPAL’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In OPAL’s case, it is able to generate 0.23x cash from its debt capital.
Can OPAL meet its short-term obligations with the cash in hand?
With current liabilities at ₹211.87M, the company has been able to meet these obligations given the level of current assets of ₹287.95M, with a current ratio of 1.36x. For Consumer Durables companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does OPAL face the risk of succumbing to its debt-load?With debt at 33.32% of equity, OPAL may be thought of as appropriately levered. OPAL is not taking on too much debt commitment, which may be constraining for future growth. OPAL’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Although OPAL’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how OPAL has been performing in the past. I suggest you continue to research Opal Luxury Time Products to get a better picture of the stock by looking at:
- Valuation: What is OPAL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether OPAL is currently mispriced by the market.
- Historical Performance: What has OPAL’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.