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

While small-cap stocks, such as Orient Green Power Company Limited (NSE:GREENPOWER) with its market cap of ₹5.37b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since GREENPOWER is loss-making right now, it’s vital to assess 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. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into GREENPOWER here.

How much cash does GREENPOWER generate through its operations?

GREENPOWER's debt levels have fallen from ₹19.60b to ₹17.30b over the last 12 months , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at ₹574.28m , ready to deploy 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 GREENPOWER’s operating efficiency ratios such as ROA here.

Can GREENPOWER meet its short-term obligations with the cash in hand?

Looking at GREENPOWER’s most recent ₹3.05b liabilities, the company has not been able to meet these commitments with a current assets level of ₹2.57b, leading to a 0.84x current account ratio. which is under the appropriate industry ratio of 3x.

Can GREENPOWER service its debt comfortably?

Since total debt levels have outpaced equities, GREENPOWER is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since GREENPOWER is presently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

With a high level of debt on its balance sheet, GREENPOWER could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for GREENPOWER to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I'm sure GREENPOWER has company-specific issues impacting its capital structure decisions. I recommend you continue to research Orient Green Power to get a more holistic view 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.