VR Logo

Companies falling short of cash

Rising short-term borrowings coupled with rising receivables mean that a company is not getting cash as fast as it is spending it

Companies falling short of cash

Value Research Stock Advisor has just released a new stock recommendation. You can click here to learn more about this premium service, and get immediate access to the live recommendations, plus new ones as soon as they are issued.

Has it ever happened that you had no money left to pay off your immediate bills and had to borrow? This can be a sign that you are not handling your finances well. What if a company doesn't have enough money to pay for its short-term requirements and has to borrow? What would you think of such a company?

A company's short-term borrowings help you judge how much the company is borrowing for its short-term requirements. Shown under the current-liabilities head of the balance sheet, such borrowings include the debt due within one year.

Short-term debt is normally required for meeting working-capital needs like inventory and payrolls. While a rising short-term debt is not a red flag in itself, seeing it relative to the growth in trade receivables and the working-capital cycle can uncover potential potholes.

A rising receivables trend would depict that a company is incurring sales at an extended credit period. But combining this trend with a deteriorating working-capital cycle means that the company is not able to convert its sales into cash fast. This can be a problem as the company might not be able to pay off its short-term borrowings and may further resort to more debt to run its operations.

The table below lists companies that have in the past three years seen a rise in short-term borrowings and receivables, along with a deteriorating working-capital cycle. The Z-Score, which measures the likelihood of bankruptcy (a score below three is bad) will further help you make sense of the balance-sheet strength of these companies.

Company Market cap
Rs cr)
Short-term borrowings (Rs cr) Trade receivables
(Rs cr)
Z-Score
Mar'18 Mar'17 Mar'16 Mar'18 Mar'17 Mar'16
Quess Corp 9483 698 470 339 921 509 405 7
Laurus Labs 3940 759 644 481 571 568 445 3
Granules India 2799 525 474 393 617 418 375 3
Shilpa Medicare 3058 98 92 74 220 171 125 6
Cox & Kings 1702 1621 864 842 2,242 1,820 1,398 3
Kirloskar Oil Engines 2263 134 12 7 402 201 158 5
Himatsingka Seide 1831 943 609 445 99 68 61 2
HG Infra Engineering 1606 176 93 59 429 181 93 5
Somany Ceramics 1544 312 262 89 504 427 317 3
Tata Metaliks 1636 218 173 134 215 188 171 4
Mold-Tek Packaging 633 86 39 19 84 62 55 5
Beekay Steel Industries 542 147 133 111 132 85 80 5
*Price data as of 15/5/2019