Radaan Mediaworks India Limited (NSE:RADAAN) is a small-cap stock with a market capitalization of ₹77.28m. 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? Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into RADAAN here.
How much cash does RADAAN generate through its operations?
Over the past year, RADAAN has reduced its debt from ₹86.12m to ₹70.55m , which comprises of short- and long-term debt. With this debt payback, RADAAN’s cash and short-term investments stands at ₹1.12m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of RADAAN’s operating efficiency ratios such as ROA here.
Can RADAAN meet its short-term obligations with the cash in hand?
With current liabilities at ₹94.79m, the company has been able to meet these obligations given the level of current assets of ₹125.25m, with a current ratio of 1.32x. Usually, for Media companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does RADAAN face the risk of succumbing to its debt-load?With debt at 38.40% of equity, RADAAN may be thought of as appropriately levered. This range is considered safe as RADAAN is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if RADAAN’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For RADAAN, the ratio of 1.75x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Although RADAAN’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure RADAAN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Radaan Mediaworks India to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RADAAN’s future growth? Take a look at our free research report of analyst consensus for RADAAN’s outlook.
- Valuation: What is RADAAN 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 RADAAN 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.