Investors are always looking for growth in small-cap stocks like Vera Synthetic Limited (NSE:VERA), with a market cap of ₹212.21m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to 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, I know these factors are very high-level, so I recommend you dig deeper yourself into VERA here.
How much cash does VERA generate through its operations?
VERA has built up its total debt levels in the last twelve months, from ₹8.11m to ₹8.53m – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at ₹4.24m for investing into the business. On top of this, VERA has produced cash from operations of ₹26.03m over the same time period, resulting in an operating cash to total debt ratio of 305.08%, meaning that VERA’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In VERA’s case, it is able to generate 3.05x cash from its debt capital.
Can VERA meet its short-term obligations with the cash in hand?
Looking at VERA’s most recent ₹34.75m liabilities, the company has been able to meet these commitments with a current assets level of ₹41.81m, leading to a 1.2x current account ratio. Generally, for Luxury companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can VERA service its debt comfortably?With a debt-to-equity ratio of 17.72%, VERA’s debt level may be seen as prudent. VERA is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if VERA’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 VERA, the ratio of 7.5x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as VERA’s high interest coverage is seen as responsible and safe practice.
VERA’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for VERA’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Vera Synthetic to get a better picture of the stock by looking at:
- Valuation: What is VERA 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 VERA is currently mispriced by the market.
- Historical Performance: What has VERA’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 past 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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.