Investors are always looking for growth in small-cap stocks like Granite Oil Corp (TSE:GXO), with a market cap of CA$96.42m. However, an important fact which most ignore is: how financially healthy is the business? Oil and Gas companies, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. 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 recommend you dig deeper yourself into GXO here.
How much cash does GXO generate through its operations?
GXO’s debt levels surged from CA$27.90m to CA$36.35m over the last 12 months , which is mainly comprised of near term debt. With this increase in debt, GXO’s cash and short-term investments stands at CA$671.00k , ready to deploy into the business. Additionally, GXO has generated CA$22.91m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 63.02%, meaning that GXO’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires a positive net income. In GXO’s case, it is able to generate 0.63x cash from its debt capital.
Does GXO’s liquid assets cover its short-term commitments?
At the current liabilities level of CA$48.49m liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.12x, which is below the prudent industry ratio of 3x.
Can GXO service its debt comfortably?GXO’s level of debt is appropriate relative to its total equity, at 20.34%. GXO is not taking on too much debt commitment, which may be constraining for future growth. GXO’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
GXO’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. However, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for GXO’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Granite Oil to get a better picture of the stock by looking at:
- Valuation: What is GXO 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 GXO is currently mispriced by the market.
- Historical Performance: What has GXO’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.