What You Must Know About Unitech Limited's (NSE:UNITECH) Financial Strength

Investors are always looking for growth in small-cap stocks like Unitech Limited (NSE:UNITECH), with a market cap of ₹11.56b. However, an important fact which most ignore is: how financially healthy is the business? Given that UNITECH is not presently profitable, it’s crucial 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. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into UNITECH here.

Does UNITECH produce enough cash relative to debt?

UNITECH has shrunken its total debt levels in the last twelve months, from ₹64.83b to ₹32.45b , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at ₹864.96m for investing 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 examine some of UNITECH’s operating efficiency ratios such as ROA here.

Can UNITECH pay its short-term liabilities?

With current liabilities at ₹169.93b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.36x. Usually, for Real Estate companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Is UNITECH’s debt level acceptable?

With debt reaching 42.29% of equity, UNITECH may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since UNITECH is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

At its current level of cash flow coverage, UNITECH has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for UNITECH's financial health. Other important fundamentals need to be considered alongside. You should continue to research Unitech to get a more holistic view 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.