Opal Luxury Time Products Limited (NSE:OPAL) is a small-cap stock with a market capitalization of ₹342.60m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Companies operating in the Consumer Durables industry facing headwinds from current disruption, especially ones that are currently loss-making, tend to be high risk. Assessing first and foremost the financial health is crucial. 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 OPAL here.
How does OPAL’s operating cash flow stack up against its debt?
OPAL’s debt level has been constant at around ₹83.90m over the previous year made up of current and long term debt. At this current level of debt, OPAL currently has ₹5.12m remaining in cash and short-term investments , ready to deploy into the business. On top of this, OPAL has generated cash from operations of ₹19.08m during the same period of time, resulting in an operating cash to total debt ratio of 22.74%, signalling that OPAL’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In OPAL’s case, it is able to generate 0.23x cash from its debt capital.
Can OPAL pay its short-term liabilities?
At the current liabilities level of ₹211.87m liabilities, it appears that 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. Usually, for Consumer Durables companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can OPAL service its debt comfortably?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 can be restrictive and risky for equity-holders. Risk around debt is very low for OPAL, and the company also has the ability and headroom to increase debt if needed going forward.
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 will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure OPAL has company-specific issues impacting its capital structure decisions. You should 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.
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.
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