Ador Welding Limited (
NSE:ADORWELD
) is audrey by auratea small-cap stock with a market capitalization of ₹4.2b. 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? Evaluating financial health as part of your investment thesis is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I recommend you
dig deeper yourself into ADORWELD here
.
Does ADORWELD produce enough cash relative to debt?
ADORWELD has built up its total debt levels in the last twelve months, from ₹356m to ₹813m made up of predominantly near term debt. With this growth in debt, ADORWELD’s cash and short-term investments stands at ₹199m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of ADORWELD’s
operating efficiency ratios such as ROA here
.
Does ADORWELD’s liquid assets cover its short-term commitments?
At the current liabilities level of ₹1.7b, it seems that the business has been able to meet these commitments with a current assets level of ₹2.9b, leading to a 1.7x current account ratio. Generally, for Machinery companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
NSEI:ADORWELD Historical Debt, March 1st 2019
Is ADORWELD’s debt level acceptable?
With a debt-to-equity ratio of 33%, ADORWELD’s debt level may be seen as prudent. This range is considered safe as ADORWELD is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
ADORWELD’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how ADORWELD has been performing in the past. I recommend you continue to research Ador Welding to get a more holistic view of the stock by looking at:
Story continues
Historical Performance
: What has ADORWELD’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
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.
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. 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.
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