Investors are always looking for growth in small-cap stocks like The Great Eastern Shipping Company Limited (NSE:GESHIP), with a market cap of ₹48.88b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Oil and Gas industry, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into GESHIP here.
Does GESHIP produce enough cash relative to debt?
GESHIP has shrunken its total debt levels in the last twelve months, from ₹68.16b to ₹55.32b – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at ₹40.83b , ready to deploy into the business. Moreover, GESHIP has produced cash from operations of ₹9.79b during the same period of time, leading to an operating cash to total debt ratio of 17.69%, signalling that GESHIP’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires a positive net income. In GESHIP’s case, it is able to generate 0.18x cash from its debt capital.
Can GESHIP meet its short-term obligations with the cash in hand?
With current liabilities at ₹20.89b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.19x. Generally, for Oil and Gas companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is GESHIP’s debt level acceptable?With debt reaching 79.84% of equity, GESHIP may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since GESHIP is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
GESHIP’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure GESHIP has company-specific issues impacting its capital structure decisions. You should continue to research Great Eastern Shipping to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GESHIP’s future growth? Take a look at our free research report of analyst consensus for GESHIP’s outlook.
- Valuation: What is GESHIP 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 GESHIP is currently mispriced by the market.
- 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 email@example.com.