Investors are always looking for growth in small-cap stocks like Intellect Design Arena Limited (NSEI:INTELLECT), with a market cap of ₹24.35B. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Software industry, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes vital. 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 INTELLECT here.

Does INTELLECT generate enough cash through operations?

INTELLECT’s debt levels surged from ₹229.06M to ₹2.32B over the last 12 months – this includes both the current and long-term debt. With this rise in debt, INTELLECT’s cash and short-term investments stands at ₹1.38B , ready to deploy 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of INTELLECT’s operating efficiency ratios such as ROA here.

Can INTELLECT pay its short-term liabilities?

With current liabilities at ₹5.30B, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.19x. Usually, for Software companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Can INTELLECT service its debt comfortably?

Next Steps:

INTELLECT’s level of debt is appropriate relative to its total equity, at 22.40%. This range is considered safe as INTELLECT is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether INTELLECT 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 INTELLECT’s, case, the ratio of 3.61x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as INTELLECT’s high interest coverage is seen as responsible and safe practice.

INTELLECT’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 will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for INTELLECT’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Intellect Design Arena to get a better picture of the stock by looking at:

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

: What are well-informed industry analysts predicting for INTELLECT’s future growth? Take a look at our free research report of analyst consensus for INTELLECT’s outlook. 2. Valuation : What is INTELLECT 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 INTELLECT is currently mispriced by the market.

: What is INTELLECT 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 INTELLECT 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.