Is Yatra Capital Limited's (AMS:YATRA) Balance Sheet Strong Enough To Weather A Storm?

By
Simply Wall St
Published
July 05, 2018

The direct benefit for Yatra Capital Limited (AMS:YATRA), which sports a zero-debt capital structure, to include debt in its capital structure is the reduced cost of capital. However, the trade-off is YATRA will have to adhere to stricter debt covenants and have less financial flexibility. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean YATRA has outstanding financial strength. I will go over a basic overview of the stock's financial health, which I believe provides a ballpark estimate of their financial health status. View out our latest analysis for Yatra Capital

Does YATRA's growth rate justify its decision for financial flexibility over lower cost of capital?

There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. YATRA’s absence of debt on its balance sheet may be due to lack of access to cheaper capital, or it may simply believe low cost is not worth sacrificing financial flexibility. However, choosing flexibility over capital returns is logical only if it’s a high-growth company. YATRA’s revenue growth over the past year is a double-digit 41.11% which is considerably high for a small-cap company. So, it is acceptable that the company is opting for a zero-debt capital structure currently as it may need to raise debt to fuel expansion in the future.

ENXTAM:YATRA Historical Debt July 5th 18

Does YATRA’s liquid assets cover its short-term commitments?

Given zero long-term debt on its balance sheet, Yatra Capital has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at YATRA’s most recent €103.35k liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 245x. However, anything about 3x may be excessive, since YATRA may be leaving too much capital in low-earning investments.

Next Steps:

YATRA is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. Since there is also no concerns around YATRA's liquidity needs, this may be its optimal capital structure for the time being. Going forward, YATRA's financial situation may change. I admit this is a fairly basic analysis for YATRA's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Yatra Capital to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for YATRA’s future growth? Take a look at our free research report of analyst consensus for YATRA’s outlook.
  2. Valuation: What is YATRA 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 YATRA is currently mispriced by the market.
  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 has no position in any of the companies mentioned. This article is general in nature. 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.
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