Zero-debt allows substantial financial flexibility, especially for small-cap companies like Glance Technologies Inc (CNSX:GET), as the company does not have to adhere to strict debt covenants. However, it also faces higher cost of capital given interest cost is generally lower than equity. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean GET has outstanding financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status. See our latest analysis for Glance Technologies
Does GET’s growth rate justify its decision for financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. The lack of debt on GET’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if GET is a high-growth company. GET delivered a strikingly high triple-digit revenue growth over the past year, therefore the company’s decision to choose financial flexibility is justified as it may need headroom to borrow in the future to sustain high growth.
Can GET pay its short-term liabilities?
Since Glance Technologies doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of CA$1.14m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 14.21x. Though, a ratio greater than 3x may be considered as too high, as GET could be holding too much capital in a low-return investment environment.
Next Steps:
Having no debt on the books means GET has more financial freedom to keep growing at its current fast rate. Since there is also no concerns around GET’s liquidity needs, this may be its optimal capital structure for the time being. Going forward, GET’s financial situation may change. I admit this is a fairly basic analysis for GET’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Glance Technologies to get a better picture of the stock by looking at:
- Historical Performance: What has GET’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.