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While small-cap stocks, such as SJVN Limited (NSE:SJVN) with its market cap of ₹101b, 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 few basic financial health checks you should consider before taking the plunge. Though, 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?
Over the past year, SJVN has reduced its debt from ₹24b to ₹22b , which also accounts for long term debt. With this debt payback, SJVN currently has ₹36b remaining in cash and short-term investments for investing into the business. Additionally, SJVN has produced ₹16b in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 74%, meaning that SJVN’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In SJVN’s case, it is able to generate 0.74x cash from its debt capital.
Does SJVN’s liquid assets cover its short-term commitments?
At the current liabilities level of ₹8.2b, it appears that the company has been able to meet these commitments with a current assets level of ₹45b, leading to a 5.44x current account ratio. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Does SJVN face the risk of succumbing to its debt-load?
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 may be constraining for future growth.
SJVN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure SJVN has company-specific issues impacting its capital structure decisions. I suggest you continue to research SJVN to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SJVN’s future growth? Take a look at our free research report of analyst consensus for SJVN’s outlook.
- 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.
- 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 firstname.lastname@example.org.