Cineline India Limited (NSE:CINELINE) is a small-cap stock with a market capitalization of ₹1.28b. 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? So, understanding the company’s financial health becomes 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, I know these factors are very high-level, so I suggest you dig deeper yourself into CINELINE here.
How much cash does CINELINE generate through its operations?
CINELINE’s debt levels have fallen from ₹1.33b to ₹1.24b over the last 12 months – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at ₹11.50m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of CINELINE’s operating efficiency ratios such as ROA here.
Does CINELINE’s liquid assets cover its short-term commitments?
At the current liabilities level of ₹94.70m liabilities, the company has not been able to meet these commitments with a current assets level of ₹42.70m, leading to a 0.45x current account ratio. which is under the appropriate industry ratio of 3x.
Is CINELINE’s debt level acceptable?With total debt exceeding equities, CINELINE is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CINELINE’s case, the ratio of 1.41x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as CINELINE’s low interest coverage already puts the company at higher risk of default.
CINELINE’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how CINELINE has been performing in the past. I suggest you continue to research Cineline India to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CINELINE’s future growth? Take a look at our free research report of analyst consensus for CINELINE’s outlook.
- Historical Performance: What has CINELINE’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.
- 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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.