Is The GO2 People Limited’s (ASX:GO2) Balance Sheet Strong Enough To Weather A Storm?

Investors are always looking for growth in small-cap stocks like The GO2 People Limited (ASX:GO2), with a market cap of AU$17.10M. However, an important fact which most ignore is: how financially healthy is the business? Given that GO2 is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I suggest you dig deeper yourself into GO2 here.

Does GO2 generate an acceptable amount of cash through operations?

GO2’s debt levels surged from AU$1.78M to AU$4.67M over the last 12 months – this includes both the current and long-term debt. With this increase in debt, GO2’s cash and short-term investments stands at AU$547.19K , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of GO2’s operating efficiency ratios such as ROA here.

Does GO2’s liquid assets cover its short-term commitments?

Looking at GO2’s most recent AU$12.14M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of AU$9.03M, with a current ratio of 0.74x below the prudent level of 3x.

ASX:GO2 Historical Debt Mar 15th 18
ASX:GO2 Historical Debt Mar 15th 18

Does GO2 face the risk of succumbing to its debt-load?

With total debt exceeding equities, GO2 is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since GO2 is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

With a high level of debt on its balance sheet, GO2 could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for GO2 to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure GO2 has company-specific issues impacting its capital structure decisions. You should continue to research GO2 People to get a more holistic view of the stock by looking at: