Having gone through the Profit & Loss statement, we now move to the Balance Sheet. Here, an important line item to look at is Debt. Any significant growth in this can be a sign of financial leverage and should be viewed cautiously, as it can have a costly impact on the company’s retained earnings.
And, what is the debt for ARBL?
Debt( INR Crs) Evaluation –
The debt has been hovering around 85Crs, and it’s encouraging to see this figure decrease compared to FY 09-10. We have already looked into the interest coverage ratio. Still, I also like to see the debt relative to Earnings before Interest and Taxes (EBIT) as an indication of how well the company deals with its finances. It is pleasing to observe that the Debt/EBIT ratio has consistently decreased.
ARBL has done a commendable job in handling its debt effectively.
How to analyse inventory
Verifying the inventory data can be beneficial to a manufacturing company. Analysing it can help us to make the necessary decisions regarding production and supply.
The inventory number of days appears to be steady, although it may be experiencing a slight drop. We have already covered the topic of computing this figure in a previous chapter. The inventory and PAT are concurrently exhibiting signs of growth – an encouraging development.
What’s the difference between Sales & Receivables
We now examine the link between sales and receivables of the enterprise. Credit sales are a concern since they may indicate that the company is pushing products by offering unsustainable lines of credit or perhaps attractive terms to shoppers.
The company has displayed remarkable firmness. According to the table, a large part of their sales is not really backed by receivables, which is quite offsetting. Simultaneously, inventory days and the receivables as % of net sales have decreased perceptibly, demonstrating its success.
What is the cash flow from operations?
Before investing in a company, it is essential to make sure they’re generating cash flows from operations, as this is the ultimate proof of their success. If they’re losing money, then it could be considered a red flag.
The cash flow from operations has been relatively volatile. However, it has retained a positive outlook over the last 5 years. This indicates that ARBL’s core business activities adequately produce cash and can be deemed prosperous.
What is Return on Equity (ROE)?
ROE measures, as a percentage, the return generated relative to shareholders’ equity, essentially demonstrating how successful the company’s promoters are with investing their funds in the business.
To illustrate ARBL’s ROE over the preceding 5 years:
The numbers surrounding ARBL are undoubtedly remarkable. I believe in investing in companies with an ROE of over 20%, which this company has, without relying on a heavy debt load, thus making it an especially appealing option.
However, I would strongly advice that you do your own research too and take wise investment decisions according to what suits your personal situation the best.
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