What does SJVN Limited’s (NSE:SJVN) Balance Sheet Tell Us About Its Future?

While small-cap stocks, such as SJVN Limited (NSE:SJVN) with its market cap of ₹105.1b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I suggest you dig deeper yourself into SJVN here.

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

SJVN has shrunken its total debt levels in the last twelve months, from ₹24.2b to ₹22.3b , which is made up of current and long term debt. With this debt repayment, SJVN currently has ₹35.5b remaining in cash and short-term investments for investing into the business. On top of this, SJVN has generated ₹16.4b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 74%, signalling that SJVN’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SJVN’s case, it is able to generate 0.74x cash from its debt capital.

Can SJVN pay its short-term liabilities?

Looking at SJVN’s most recent ₹8.2b liabilities, it seems that the business has been able to meet these obligations given the level of current assets of ₹44.5b, with a current ratio of 5.44x. However, many consider anything above 3x to be quite high and could mean that SJVN has too much idle capital in low-earning investments.

NSEI:SJVN Historical Debt October 19th 18
NSEI:SJVN Historical Debt October 19th 18

Is SJVN’s debt level acceptable?

With debt at 21% of equity, SJVN may be thought of as appropriately levered. This range is considered safe as SJVN is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.

Next Steps:

SJVN 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. Keep in mind I haven’t considered other factors such as how SJVN has been performing in the past. You should continue to research SJVN to get a more holistic view of the stock by looking at:

  1. Valuation: What is SJVN 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 SJVN is currently mispriced by the market.
  2. Historical Performance: What has SJVN’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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.