While small-cap stocks, such as Opal Luxury Time Products Limited (NSEI:OPAL) with its market cap of IN₨369.47M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Consumer Durables industry facing headwinds from current disruption, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into OPAL here.
Does OPAL generate an acceptable amount of cash through operations?
OPAL’s debt level has been constant at around IN₨83.90M over the previous year comprising of short- and long-term debt. At this constant level of debt, OPAL currently has IN₨5.12M remaining in cash and short-term investments , ready to deploy into the business. On top of this, OPAL has produced cash from operations of IN₨19.08M during the same period of time, leading to an operating cash to total debt ratio of 22.74%, meaning that OPAL’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational 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.
Does OPAL’s liquid assets cover its short-term commitments?
At the current liabilities level of IN₨211.87M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of IN₨287.95M, with a current ratio of 1.36x. Generally, for Consumer Durables companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is OPAL’s debt level acceptable?With a debt-to-equity ratio of 33.32%, OPAL’s debt level may be seen as prudent. This range is considered safe as OPAL is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for OPAL, and the company also has the ability and headroom to increase debt if needed going forward.
OPAL’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how OPAL has been performing in the past. You should continue to research Opal Luxury Time Products to get a more holistic view of the stock by looking at:
- 1. 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.
- 2. 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.
- 3. 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.