U.S. Markets open in 5 hrs 22 mins

Is MakeMyTrip Limited (NASDAQ:MMYT) A Financially Strong Company?

Simply Wall St

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as MakeMyTrip Limited (NASDAQ:MMYT), with a market capitalization of US$2.7b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at MMYT’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of MakeMyTrip's financial health, so you should conduct further analysis into MMYT here.

Check out our latest analysis for MakeMyTrip

MMYT’s Debt (And Cash Flows)

MMYT has shrunk its total debt levels in the last twelve months, from US$789k to US$698k , which also accounts for long term debt. With this debt repayment, MMYT currently has US$301m remaining in cash and short-term investments to keep the business going. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of MMYT’s operating efficiency ratios such as ROA here.

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

Looking at MMYT’s US$183m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.34x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Online Retail companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NasdaqGS:MMYT Historical Debt, April 10th 2019

Does MMYT face the risk of succumbing to its debt-load?

What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. The good news for investors is that MakeMyTrip has virtually no debt. It has been operating its business with miniscule debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with MMYT, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

MMYT’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how MMYT has been performing in the past. I recommend you continue to research MakeMyTrip to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for MMYT’s future growth? Take a look at our free research report of analyst consensus for MMYT’s outlook.
  2. Valuation: What is MMYT 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 MMYT 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.