Pearl Global Industries Limited (NSE:PGIL) is a small-cap stock with a market capitalization of ₹2.69b. 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? Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. 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’d encourage you to dig deeper yourself into PGIL here.
How much cash does PGIL generate through its operations?
PGIL’s debt level has been constant at around ₹2.63b over the previous year – this includes both the current and long-term debt. At this current level of debt, PGIL’s cash and short-term investments stands at ₹1.23b for investing 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 PGIL’s operating efficiency ratios such as ROA here.
Can PGIL pay its short-term liabilities?
Looking at PGIL’s most recent ₹4.26b liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.29x. Generally, for Luxury companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is PGIL’s debt level acceptable?With a debt-to-equity ratio of 64.86%, PGIL can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether PGIL is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In PGIL’s, case, the ratio of 1.95x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
At its current level of cash flow coverage, PGIL has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for PGIL’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Pearl Global Industries to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PGIL’s future growth? Take a look at our free research report of analyst consensus for PGIL’s outlook.
- Historical Performance: What has PGIL’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.