Investors are always looking for growth in small-cap stocks like Future Market Networks Limited (NSE:FMNL), with a market cap of ₹3.6b. However, an important fact which most ignore is: how financially healthy is the business? Since FMNL is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into FMNL here.
How does FMNL’s operating cash flow stack up against its debt?
Over the past year, FMNL has reduced its debt from ₹3.4b to ₹2.4b , which is made up of current and long term debt. With this debt repayment, FMNL’s cash and short-term investments stands at ₹89m , ready to deploy into the business. Moreover, FMNL has generated ₹994m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 42%, indicating that FMNL’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In FMNL’s case, it is able to generate 0.42x cash from its debt capital.
Can FMNL meet its short-term obligations with the cash in hand?
Looking at FMNL’s most recent ₹3.9b liabilities, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.57x.
Is FMNL’s debt level acceptable?
Since total debt levels have outpaced equities, FMNL is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since FMNL is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
FMNL’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though 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 FMNL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Future Market Networks to get a more holistic view of the stock by looking at:
- Valuation: What is FMNL 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 FMNL is currently mispriced by the market.
- Historical Performance: What has FMNL’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.
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