Videocon Industries Limited (NSE:VIDEOIND): Time For A Financial Health Check
Videocon Industries Limited (NSEI:VIDEOIND) is a small-cap stock with a market capitalization of ₹7.91B. 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? Consumer Durables businesses operating in the environment facing headwinds from current disruption, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. 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 recommend you dig deeper yourself into VIDEOIND here.
Does VIDEOIND generate an acceptable amount of cash through operations?
VIDEOIND has shrunken its total debt levels in the last twelve months, from ₹475,840.6M to ₹448,334.3M – this includes both the current and long-term debt. With this reduction in debt, VIDEOIND’s cash and short-term investments stands at ₹14,048.2M , ready to deploy into the business. Moreover, VIDEOIND has generated ₹44,441.0M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 9.91%, meaning that VIDEOIND’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires a positive net income. In VIDEOIND’s case, it is able to generate 0.1x cash from its debt capital.
Can VIDEOIND pay its short-term liabilities?
Looking at VIDEOIND’s most recent ₹139,894.0M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of ₹265,024.0M, with a current ratio of 1.89x. Generally, for consumer durables companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can VIDEOIND service its debt comfortably?
With total debt exceeding equities, VIDEOIND 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. However, since VIDEOIND is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
Are you a shareholder? VIDEOIND’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that VIDEOIND’s financial situation may change. I recommend keeping on top of market expectations for VIDEOIND’s future growth on our free analysis platform.
Are you a potential investor? VIDEOIND’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. You should continue your analysis by taking a look at VIDEOIND’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.
