What You Must Know About Jai Corp Limited's (NSE:JAICORPLTD) Financial Strength

Investors are always looking for growth in small-cap stocks like Jai Corp Limited (NSEI:JAICORPLTD), with a market cap of ₹23.78B. However, an important fact which most ignore is: how financially healthy is the business? Since JAICORPLTD is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into JAICORPLTD here.

Does JAICORPLTD generate enough cash through operations?

JAICORPLTD's debt level has been constant at around ₹9.23B over the previous year – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at ₹1.69B for investing into the business. On top of this, JAICORPLTD has produced ₹856.42M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 9.28%, signalling that JAICORPLTD’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In JAICORPLTD’s case, it is able to generate 0.093x cash from its debt capital.

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

With current liabilities at ₹9.51B, it appears that the company is not able to meet these obligations given the level of current assets of ₹6.83B, with a current ratio of 0.72x below the prudent level of 3x.

Is JAICORPLTD’s debt level acceptable?

JAICORPLTD is a relatively highly levered company with a debt-to-equity of 72.59%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since JAICORPLTD is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

At its current level of cash flow coverage, JAICORPLTD has room for improvement to better cushion for events which may require debt repayment. In addition to this, 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 JAICORPLTD has company-specific issues impacting its capital structure decisions. You should continue to research Jai to get a more holistic view of the stock by looking at:

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