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Stocks with market capitalization between $2B and $10B, such as L&T Technology Services Limited (NSE:LTTS) with a size of ₹178b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at LTTS’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into LTTS here.

View our latest analysis for L&T Technology Services

Does LTTS Produce Much Cash Relative To Its Debt?

LTTS's debt level has been constant at around ₹702m over the previous year . At this current level of debt, LTTS's cash and short-term investments stands at ₹7.8b to keep the business going. Additionally, LTTS has generated cash from operations of ₹8.1b in the last twelve months, resulting in an operating cash to total debt ratio of 1148%, meaning that LTTS’s operating cash is sufficient to cover its debt.

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

Looking at LTTS’s ₹8.6b in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of ₹24b, with a current ratio of 2.75x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Professional Services companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

Is LTTS’s debt level acceptable?

With debt at 2.8% of equity, LTTS may be thought of as having low leverage. This range is considered safe as LTTS is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.

Next Steps:

LTTS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, 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 LTTS's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research L&T Technology Services to get a more holistic view of the stock by looking at:

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

2. Valuation: What is LTTS 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 LTTS 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.