Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Bata India Limited (NSE:BATAINDIA), with a market cap of ₹147b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at BATAINDIA’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Bata India’s financial health, so you should conduct further analysis into BATAINDIA here.

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Can BATAINDIA service its debt comfortably?

Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For BATAINDIA, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with BATAINDIA, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Can BATAINDIA meet its short-term obligations with the cash in hand?

Since Bata India doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at BATAINDIA’s ₹5.6b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of ₹16b, leading to a 2.77x current account ratio. For Luxury companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Next Steps:

BATAINDIA has no debt as well as ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, though, some degree of debt could also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure BATAINDIA has company-specific issues impacting its capital structure decisions. You should continue to research Bata India to get a better picture of the stock by looking at:

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

2. Valuation: What is BATAINDIA 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 BATAINDIA 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.