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GTN Limited (ASX:GTN) is a small-cap stock with a market capitalization of AU$209m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into GTN here.
How does GTN’s operating cash flow stack up against its debt?
Over the past year, GTN has reduced its debt from AU$98m to AU$58m , which also accounts for long term debt. With this reduction in debt, GTN currently has AU$52m remaining in cash and short-term investments , ready to deploy into the business. Additionally, GTN has generated cash from operations of AU$10.0m in the last twelve months, resulting in an operating cash to total debt ratio of 17%, indicating that GTN’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In GTN’s case, it is able to generate 0.17x cash from its debt capital.
Can GTN pay its short-term liabilities?
With current liabilities at AU$30m, it seems that the business has been able to meet these commitments with a current assets level of AU$94m, leading to a 3.07x current account ratio. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Does GTN face the risk of succumbing to its debt-load?
GTN’s level of debt is appropriate relative to its total equity, at 23%. GTN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
GTN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for GTN’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research GTN to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GTN’s future growth? Take a look at our free research report of analyst consensus for GTN’s outlook.
- Valuation: What is GTN 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 GTN 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 firstname.lastname@example.org.