D-Link (India) Limited (NSEI:DLINKINDIA) is a small-cap stock with a market capitalization of ₹3.81B. 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? Electronic companies, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into DLINKINDIA here.
How does DLINKINDIA’s operating cash flow stack up against its debt?
Over the past year, DLINKINDIA has borrowed debt capital of around ₹114.76M , which is mainly comprised of near term debt. With this increase in debt, DLINKINDIA’s cash and short-term investments stands at ₹36.81M , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 DLINKINDIA’s operating efficiency ratios such as ROA here.
Can DLINKINDIA pay its short-term liabilities?
With current liabilities at ₹985.02M, it seems that the business has been able to meet these commitments with a current assets level of ₹2.32B, leading to a 2.35x current account ratio. Usually, for Electronic companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is DLINKINDIA’s debt level acceptable?With a debt-to-equity ratio of 6.60%, DLINKINDIA’s debt level is relatively low. This range is considered safe as DLINKINDIA is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether DLINKINDIA is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In DLINKINDIA’s, case, the ratio of 148x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving DLINKINDIA ample headroom to grow its debt facilities.
DLINKINDIA’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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 DLINKINDIA has company-specific issues impacting its capital structure decisions. I suggest you continue to research D-Link (India) to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has DLINKINDIA’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.