Is KSK Energy Ventures Limited's (NSE:KSK) Balance Sheet Strong Enough To Weather A Storm?

Investors are always looking for growth in small-cap stocks like KSK Energy Ventures Limited (NSEI:KSK), with a market cap of ₹3.54B. However, an important fact which most ignore is: how financially healthy is the business? Since KSK is loss-making right now, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I suggest you dig deeper yourself into KSK here.

Does KSK generate enough cash through operations?

Over the past year, KSK has ramped up its debt from ₹195,195.0M to ₹231,058.8M – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at ₹6,922.0M for investing into the business. Additionally, KSK has produced ₹10,339.2M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 0.04x, indicating that KSK’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In KSK’s case, it is able to generate 0.04x cash from its debt capital.

Can KSK pay its short-term liabilities?

With current liabilities at ₹70,628.7M liabilities, the company is not able to meet these obligations given the level of current assets of ₹56,935.1M, with a current ratio of 0.81x below the prudent level of 3x.

Can KSK service its debt comfortably?

KSK is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since KSK is currently loss-making, sustainability of its current state of operations becomes a concern. 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:

Are you a shareholder? KSK’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, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. In the future, KSK's financial situation may change. I recommend researching market expectations for KSK's future growth on our free analysis platform.

Are you a potential investor? KSK's high debt levels along with low cash coverage of debt as well as low liquidity coverage of near-term commitments may send potential investors running the other way. However, keep in mind that this is a point-in-time analysis, and today's performance may not be representative of KSK's track record. I encourage you to continue your research by taking a look at KSK's past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.

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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.