Sunflag Iron and Steel Company Limited (
NSE:SUNFLAG
) is fha loan requirements louisianaa small-cap stock with a market capitalization of ₹10b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I suggest you
dig deeper yourself into SUNFLAG here
.
How does SUNFLAG’s operating cash flow stack up against its debt?
SUNFLAG has sustained its debt level by about ₹3.4b over the last 12 months – this includes long-term debt. At this current level of debt, the current cash and short-term investment levels stands at ₹100m , ready to deploy into the business. On top of this, SUNFLAG has produced cash from operations of ₹1.2b in the last twelve months, leading to an operating cash to total debt ratio of 34%, indicating that SUNFLAG’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In SUNFLAG’s case, it is able to generate 0.34x cash from its debt capital.
Can SUNFLAG meet its short-term obligations with the cash in hand?
With current liabilities at ₹5.2b, the company has been able to meet these commitments with a current assets level of ₹8.6b, leading to a 1.65x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
NSEI:SUNFLAG Historical Debt January 2nd 19
Can SUNFLAG service its debt comfortably?
SUNFLAG is a relatively highly levered company with a debt-to-equity of 41%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In SUNFLAG’s case, the ratio of 8.83x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as SUNFLAG’s high interest coverage is seen as responsible and safe practice.
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SUNFLAG’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around SUNFLAG’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how SUNFLAG has been performing in the past. You should continue to research Sunflag Iron and Steel to get a better picture of the small-cap by looking at:
Future Outlook
: What are well-informed industry analysts predicting for SUNFLAG’s future growth? Take a look at our
free research report of analyst consensus
for SUNFLAG’s outlook.
Historical Performance
: What has SUNFLAG’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.
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
.
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