Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Ambuja Cements Limited (NSE:AMBUJACEM), with a market cap of ₹454b, often get neglected by retail investors. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at AMBUJACEM’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AMBUJACEM here.
AMBUJACEM’s Debt (And Cash Flows)
AMBUJACEM has built up its total debt levels in the last twelve months, from ₹241m to ₹397m – this includes long-term debt. With this rise in debt, AMBUJACEM’s cash and short-term investments stands at ₹61b to keep the business going. On top of this, AMBUJACEM has produced cash from operations of ₹17b over the same time period, leading to an operating cash to total debt ratio of 4351%, meaning that AMBUJACEM’s debt is appropriately covered by operating cash.
Can AMBUJACEM meet its short-term obligations with the cash in hand?
With current liabilities at ₹84b, the company has been able to meet these obligations given the level of current assets of ₹124b, with a current ratio of 1.48x. The current ratio is calculated by dividing current assets by current liabilities. For Basic Materials companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Is AMBUJACEM’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Ambuja Cements has virtually no debt. This means it has been running its business utilising funding from primarily its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with AMBUJACEM, and the company has plenty of headroom and ability to raise debt should it need to in the future.
AMBUJACEM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how AMBUJACEM has been performing in the past. You should continue to research Ambuja Cements to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AMBUJACEM’s future growth? Take a look at our free research report of analyst consensus for AMBUJACEM’s outlook.
- Valuation: What is AMBUJACEM 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 AMBUJACEM 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.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.