Investors are always looking for growth in small-cap stocks like Fortis Healthcare Limited (NSEI:FORTIS), with a market cap of IN₨82.96B. However, an important fact which most ignore is: how financially healthy is the business? Healthcare companies, even ones that are profitable, are more likely to be higher risk. Assessing first and foremost the financial health is vital. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I suggest you dig deeper yourself into FORTIS here.
How does FORTIS’s operating cash flow stack up against its debt?
FORTIS has built up its total debt levels in the last twelve months, from IN₨15.14B to IN₨22.20B , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at IN₨9.38B for investing into the business. Additionally, FORTIS has produced IN₨9.90B in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 44.61%, meaning that FORTIS’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In FORTIS’s case, it is able to generate 0.45x cash from its debt capital.
Can FORTIS pay its short-term liabilities?
Looking at FORTIS’s most recent IN₨19.26B liabilities, it seems that the business has not been able to meet these commitments with a current assets level of IN₨17.75B, leading to a 0.92x current account ratio. which is under the appropriate industry ratio of 3x.
Can FORTIS service its debt comfortably?With debt at 31.08% of equity, FORTIS may be thought of as appropriately levered. This range is considered safe as FORTIS is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether FORTIS 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 FORTIS’s, case, the ratio of 0.57x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as FORTIS’s low interest coverage already puts the company at higher risk of default.
FORTIS’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Though its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for FORTIS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Fortis Healthcare to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for FORTIS’s future growth? Take a look at our free research report of analyst consensus for FORTIS’s outlook.
- 2. Valuation: What is FORTIS 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 FORTIS is currently mispriced by the market.
- 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.