What does Unitech Limited's (NSE:UNITECH) Balance Sheet Tell Us About Its Future?

Unitech Limited (NSEI:UNITECH) is a small-cap stock with a market capitalization of ₹16.81B. 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? Since UNITECH is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into UNITECH here.

How does UNITECH’s operating cash flow stack up against its debt?

UNITECH has built up its total debt levels in the last twelve months, from ₹61.45B to ₹64.83B – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at ₹1.21B , 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. For this article’s sake, I won’t be looking at this today, but you can assess some of UNITECH’s operating efficiency ratios such as ROA here.

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

At the current liabilities level of ₹168.08B liabilities, it seems that the business has been able to meet these obligations given the level of current assets of ₹232.50B, with a current ratio of 1.38x. Generally, for Real Estate companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Does UNITECH face the risk of succumbing to its debt-load?

UNITECH’s level of debt is appropriate relative to its total equity, at 36.91%. This range is considered safe as UNITECH is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors' risk associated with debt is very low with UNITECH, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

UNITECH’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I'm sure UNITECH has company-specific issues impacting its capital structure decisions. I recommend you continue to research Unitech to get a better picture of the stock by looking at:

• 1. Historical Performance: What has UNITECH'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.
• 2. 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.