Yahoo Finance Are India Glycols Limited’s (NSE:INDIAGLYCO) Interest Costs Too High?
While small-cap stocks, such as India Glycols Limited (NSE:INDIAGLYCO) with its market cap of ₹13.65b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to 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. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into INDIAGLYCO here.
How does INDIAGLYCO’s operating cash flow stack up against its debt?
INDIAGLYCO’s debt levels have fallen from ₹10.95b to ₹7.51b over the last 12 months , which is made up of current and long term debt. With this debt payback, INDIAGLYCO currently has ₹1.12b remaining in cash and short-term investments , 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. For this article’s sake, I won’t be looking at this today, but you can assess some of INDIAGLYCO’s operating efficiency ratios such as ROA here.
Can INDIAGLYCO meet its short-term obligations with the cash in hand?
Looking at INDIAGLYCO’s most recent ₹16.65b liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.65x, which is below the prudent industry ratio of 3x.
Is INDIAGLYCO’s debt level acceptable?
With a debt-to-equity ratio of 88.85%, INDIAGLYCO can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether INDIAGLYCO is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In INDIAGLYCO’s, case, the ratio of 2x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
INDIAGLYCO’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how INDIAGLYCO has been performing in the past. You should continue to research India Glycols to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for INDIAGLYCO’s future growth? Take a look at our free research report of analyst consensus for INDIAGLYCO’s outlook.
Valuation: What is INDIAGLYCO 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 INDIAGLYCO 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 pass 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.
