Orient Green Power Company Limited (NSE:GREENPOWER): Time For A Financial Health Check

Orient Green Power Company Limited (NSEI:GREENPOWER) is a small-cap stock with a market capitalization of ₹7.32B. 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 GREENPOWER is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. 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 suggest you dig deeper yourself into GREENPOWER here.

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

Over the past year, GREENPOWER has maintained its debt levels at around ₹19.60B comprising of short- and long-term debt. At this stable level of debt, GREENPOWER currently has ₹139.81M remaining in cash and short-term investments , ready to deploy into the business. On top of this, GREENPOWER has generated ₹3.06B in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 15.62%, indicating that GREENPOWER’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires a positive net income. In GREENPOWER’s case, it is able to generate 0.16x cash from its debt capital.

Can GREENPOWER pay its short-term liabilities?

Looking at GREENPOWER’s most recent ₹8.89B liabilities, the company has not been able to meet these commitments with a current assets level of ₹2.82B, leading to a 0.32x current account ratio. which is under the appropriate industry ratio of 3x.

Is GREENPOWER’s debt level acceptable?

Since total debt levels have outpaced equities, GREENPOWER is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since GREENPOWER is presently loss-making, there’s a question of sustainability of its current operations. 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:

GREENPOWER’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven't considered other factors such as how GREENPOWER has been performing in the past. I suggest you continue to research Orient Green Power to get a better picture of the stock by looking at:

• 1. Valuation: What is GREENPOWER 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 GREENPOWER is currently mispriced by the market.
• 2. Historical Performance: What has GREENPOWER'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.
• 3. 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.