Investors are always looking for growth in small-cap stocks like Patspin India Limited (NSE:PATSPINLTD), with a market cap of ₹384.95m. However, an important fact which most ignore is: how financially healthy is the business? Since PATSPINLTD is loss-making right now, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into PATSPINLTD here.
Does PATSPINLTD produce enough cash relative to debt?
PATSPINLTD has shrunken its total debt levels in the last twelve months, from ₹2.35b to ₹2.07b – this includes both the current and long-term debt. With this debt repayment, PATSPINLTD’s cash and short-term investments stands at ₹79.80m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of PATSPINLTD’s operating efficiency ratios such as ROA here.
Can PATSPINLTD pay its short-term liabilities?
With current liabilities at ₹1.99b, the company has not been able to meet these commitments with a current assets level of ₹1.38b, leading to a 0.69x current account ratio. which is under the appropriate industry ratio of 3x.
Does PATSPINLTD face the risk of succumbing to its debt-load?Since total debt levels have outpaced equities, PATSPINLTD is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since PATSPINLTD is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
PATSPINLTD’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure PATSPINLTD has company-specific issues impacting its capital structure decisions. You should continue to research Patspin India to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PATSPINLTD’s future growth? Take a look at our free research report of analyst consensus for PATSPINLTD’s outlook.
- Historical Performance: What has PATSPINLTD’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.