Genus Power Infrastructures Limited (NSE:GENUSPOWER) is a small-cap stock with a market capitalization of ₹7.6b. 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? Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. We’ll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into GENUSPOWER here.
Does GENUSPOWER Produce Much Cash Relative To Its Debt?
GENUSPOWER’s debt levels surged from ₹2.2b to ₹2.4b over the last 12 months , which includes long-term debt. With this increase in debt, GENUSPOWER currently has ₹2.0b remaining in cash and short-term investments to keep the business going. Additionally, GENUSPOWER has generated ₹64m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 2.7%, indicating that GENUSPOWER’s debt is not covered by operating cash.
Can GENUSPOWER pay its short-term liabilities?
Looking at GENUSPOWER’s ₹5.3b in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of ₹9.8b, leading to a 1.83x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Electronic 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.
Can GENUSPOWER service its debt comfortably?
GENUSPOWER’s level of debt is appropriate relative to its total equity, at 32%. This range is considered safe as GENUSPOWER is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if GENUSPOWER’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For GENUSPOWER, the ratio of 9.05x suggests that interest is appropriately covered, which means that lenders may be willing to lend out more funding as GENUSPOWER’s high interest coverage is seen as responsible and safe practice.
GENUSPOWER has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for GENUSPOWER’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Genus Power Infrastructures to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GENUSPOWER’s future growth? Take a look at our free research report of analyst consensus for GENUSPOWER’s outlook.
- Valuation: What is GENUSPOWER 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 GENUSPOWER is currently mispriced by the market.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.