Cash rich small caps

What Is Cashflow?

Cash flow depicts the flow of cash generated or used by an individual, business, or organisation. In the stock market, cash flow is used to describe the inflow and outflow of publicly listed companies. This figure can be seen in a company’s financial statements under the cash flow statement.

Cash flow is of two types: cash inflow and outflow. Inflow refers to the amount of cash that flows in, and outflow refers to the amount of cash that goes out of the company. The net difference is called positive cash flow when the total cash inflow exceeds the total cash outflow. On the other hand, when the outflow is greater than the inflow, it is called the negative cash flow.

Why Is Cashflow Important in the Share Market?

A company's cash flows are important because they enable investors to gauge its financial position. By looking at the cash flow statements, you can assess how much cash a company is able to generate or disburse through its business in a given period. A positive net cash flow indicates that the business is receiving more cash than it is using to fund its operations, financing and investing activities. On the contrary, a negative net cash flow indicates more spending and a bad financial position.

Additionally, cash flow is important in the valuation of companies. One of the major methods used to perform valuation is the Discounted Cashflow Model (DCF). Under this method, the future cash flows of a company are discounted to calculate their net present value (NPV). By doing so, investors are able to determine the true value of a stock or a project.

• Cash flow is important for investors because it helps them analyse how much cash a company is able to generate in a year. 
• It is also used in the discounted cash flow (DCF) company valuation method.

What are Smallcap Stocks?

Smallcap stocks are those listed shares that have a market capitalisation value of less than 5,000 Crores and are ranked below 251 and below on the stock market.

These stocks are highly volatile and are usually not backed by strong fundamentals. The underlying companies of smallcap stocks operate in the initial phases of operations and attract lesser demand from institutional investors due to high risk.

Besides, all the risks smallcap stocks have, they can sometimes become game-changing investment opportunities. Since they are ranked below large midcap stocks, smallcap stocks offer a huge runway for growth and can generate good returns if invested after strong analysis and research.

• Stocks ranked 250 and below on the stock market with a market cap lower than 5,000 crore are called smallcap stocks.
• Smallcap stocks are very volatile and are ranked below the large and midcap stocks. 
• Smallcap stocks also have the potential to generate significant returns in the long term.

What Are Cash-Rich Smallcap Stocks in the Share Market?

Cash-rich smallcap stocks refer to those listed shares that lie in the small-cap category and have a positive cash flow. Along with a positive cash balance, these stocks also have positive EPS growth in the past 1 year.

Cash-rich smallcap stocks are preferred by investors because they allow investors to invest in smallcap stocks, which are rich in cash, providing cushioning against volatility and unexpected losses.

Key Takeaways On Cash Rich Small Cap Stocks

• Cashflow refers to the flow of cash that is generated and used within a business, organisation or individual. This flow is of two types: inflow and outflow.
• It helps investors analyse a company’s financial position and perform valuations for stocks and projects. 
• Cashflow inflow refers to the cash the organisation receives, whereas outflow is the cash that goes out of the business. 
• A company’s net cash balance represents its financial position and health. 
• Cash-rich smallcap stocks are a sub-category of small-cap stocks with positive net cashflow and EPS growth in the last 1 year.