What Investors Should Know About Asian Hotels (West) Limited's (NSE:AHLWEST) Financial Strength

Asian Hotels (West) Limited (NSEI:AHLWEST) is a small-cap stock with a market capitalization of ₹3.34B. 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? Since AHLWEST is loss-making right now, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into AHLWEST here.

How does AHLWEST’s operating cash flow stack up against its debt?

AHLWEST has sustained its debt level by about ₹7.82B over the last 12 months comprising of short- and long-term debt. At this constant level of debt, AHLWEST currently has ₹178.60M remaining in cash and short-term investments , ready to deploy into the business. Additionally, AHLWEST has produced cash from operations of ₹1.06B during the same period of time, resulting in an operating cash to total debt ratio of 13.53%, meaning that AHLWEST’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In AHLWEST’s case, it is able to generate 0.14x cash from its debt capital.

Does AHLWEST’s liquid assets cover its short-term commitments?

Looking at AHLWEST’s most recent ₹622.15M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of ₹611.13M, with a current ratio of 0.98x below the prudent level of 3x.

Can AHLWEST service its debt comfortably?

With total debt exceeding equities, AHLWEST is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since AHLWEST is currently loss-making, 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.

Next Steps:

AHLWEST’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. Keep in mind I haven't considered other factors such as how AHLWEST has been performing in the past. I recommend you continue to research Asian Hotels (West) to get a better picture of the stock by looking at:

• 1. Valuation: What is AHLWEST 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 AHLWEST is currently mispriced by the market.
• 2. Historical Performance: What has AHLWEST'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.
• 3. 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.