Is Videocon d2h Limited’s (NASDAQ:VDTH) Balance Sheet A Threat To Its Future?
While small-cap stocks, such as Videocon d2h Limited (NASDAQ:VDTH) with its market cap of US$853.51M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes essential, 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. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into VDTH here.
How does VDTH’s operating cash flow stack up against its debt?
VDTH has shrunken its total debt levels in the last twelve months, from ₹23.17B to ₹20.32B , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at ₹690.54M for investing into the business. Moreover, VDTH has generated ₹10.99B in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 54.08%, signalling that VDTH’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In VDTH’s case, it is able to generate 0.54x cash from its debt capital.
Does VDTH’s liquid assets cover its short-term commitments?
Looking at VDTH’s most recent ₹32.85B liabilities, it seems that the business has not been able to meet these commitments with a current assets level of ₹5.68B, leading to a 0.17x current account ratio. which is under the appropriate industry ratio of 3x.
Can VDTH service its debt comfortably?
With total debt exceeding equities, VDTH is considered a highly levered 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 VDTH 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 VDTH’s, case, the ratio of 1.21x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as VDTH’s low interest coverage already puts the company at higher risk of default.
Next Steps:
VDTH’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. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure VDTH has company-specific issues impacting its capital structure decisions. I suggest you continue to research Videocon d2h to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for VDTH’s future growth? Take a look at our free research report of analyst consensus for VDTH’s outlook.
2. Valuation: What is VDTH 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 VDTH 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.
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.
