While small-cap stocks, such as Intense Technologies Limited (NSE:INTENTECH) with its market cap of ₹975m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Software industry, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. 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 INTENTECH here.
How much cash does INTENTECH generate through its operations?
INTENTECH’s debt levels surged from ₹24m to ₹51m over the last 12 months , which accounts for long term debt. With this growth in debt, the current cash and short-term investment levels stands at ₹52m , ready to deploy 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. For this article’s sake, I won’t be looking at this today, but you can examine some of INTENTECH’s operating efficiency ratios such as ROA here.
Does INTENTECH’s liquid assets cover its short-term commitments?
With current liabilities at ₹89m, it appears that the company has been able to meet these obligations given the level of current assets of ₹366m, with a current ratio of 4.1x. Having said that, a ratio above 3x may be considered excessive by some investors.
Can INTENTECH service its debt comfortably?
INTENTECH’s level of debt is appropriate relative to its total equity, at 13%. INTENTECH is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with INTENTECH, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
INTENTECH’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, 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 INTENTECH has company-specific issues impacting its capital structure decisions. I suggest you continue to research Intense Technologies to get a better picture of the stock by looking at:
- Historical Performance: What has INTENTECH’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.
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