Investors are always looking for growth in small-cap stocks like Globus Spirits Limited (NSE:GLOBUSSPR), with a market cap of ₹4.5b. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into GLOBUSSPR here.
How much cash does GLOBUSSPR generate through its operations?
GLOBUSSPR has shrunken its total debt levels in the last twelve months, from ₹2.7b to ₹2.5b – this includes long-term debt. With this debt repayment, the current cash and short-term investment levels stands at ₹17m , ready to deploy into the business. Additionally, GLOBUSSPR has generated cash from operations of ₹512m over the same time period, leading to an operating cash to total debt ratio of 20%, signalling that GLOBUSSPR’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In GLOBUSSPR’s case, it is able to generate 0.2x cash from its debt capital.
Can GLOBUSSPR pay its short-term liabilities?
At the current liabilities level of ₹2.3b, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.58x.
Can GLOBUSSPR service its debt comfortably?
GLOBUSSPR is a relatively highly levered company with a debt-to-equity of 67%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether GLOBUSSPR 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 GLOBUSSPR’s, case, the ratio of 1.27x 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.
GLOBUSSPR’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, 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 GLOBUSSPR has company-specific issues impacting its capital structure decisions. I recommend you continue to research Globus Spirits to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GLOBUSSPR’s future growth? Take a look at our free research report of analyst consensus for GLOBUSSPR’s outlook.
- Valuation: What is GLOBUSSPR 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 GLOBUSSPR is currently mispriced by the market.
- 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.
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