While small-cap stocks, such as Pulz Electronics Limited (NSEI:PULZ) with its market cap of ₹98.14M, 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, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into PULZ here.
How does PULZ’s operating cash flow stack up against its debt?
PULZ’s debt levels surged from ₹15.63M to ₹17.39M over the last 12 months , which is made up of current and long term debt. With this rise in debt, PULZ currently has ₹473.00K remaining in cash and short-term investments for investing into the business. Additionally, PULZ has generated ₹3.98M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 22.89%, signalling that PULZ’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PULZ’s case, it is able to generate 0.23x cash from its debt capital.
Can PULZ meet its short-term obligations with the cash in hand?
Looking at PULZ’s most recent ₹43.92M liabilities, it seems that the business has been able to meet these commitments with a current assets level of ₹59.67M, leading to a 1.36x current account ratio. Usually, for Consumer Durables companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is PULZ’s debt level acceptable?With a debt-to-equity ratio of 69.87%, PULZ can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if PULZ’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For PULZ, the ratio of 2.76x 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, PULZ 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 PULZ’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Pulz Electronics to get a better picture of the stock by looking at:
- 1. Historical Performance: What has PULZ’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.
- 2. 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.