Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Hindustan Aeronautics Limited (NSE:HAL), with a market cap of ₹289.35b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. HAL’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into HAL here. See our latest analysis for Hindustan Aeronautics
How much cash does HAL generate through its operations?
HAL has shrunken its total debt levels in the last twelve months, from ₹9.50b to ₹8.64b , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at ₹87.14b for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of HAL’s operating efficiency ratios such as ROA here.
Does HAL’s liquid assets cover its short-term commitments?
With current liabilities at ₹254.06b, it seems that the business has been able to meet these commitments with a current assets level of ₹370.15b, leading to a 1.46x current account ratio. Usually, for Aerospace & Defense 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.
Does HAL face the risk of succumbing to its debt-load?
With debt at 7.17% of equity, HAL may be thought of as having low leverage. HAL is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether HAL 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 HAL’s, case, the ratio of 299x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as HAL’s high interest coverage is seen as responsible and safe practice.
HAL’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. This is only a rough assessment of financial health, and I’m sure HAL has company-specific issues impacting its capital structure decisions. You should continue to research Hindustan Aeronautics to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HAL’s future growth? Take a look at our free research report of analyst consensus for HAL’s outlook.
- Historical Performance: What has HAL’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.
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