Investors are always looking for growth in small-cap stocks like Gusbourne PLC (AIM:GUS), with a market cap of UK£25.00M. However, an important fact which most ignore is: how financially healthy is the business? Given that GUS is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into GUS here.
How does GUS’s operating cash flow stack up against its debt?
GUS’s debt levels surged from UK£3.95M to UK£6.54M over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, GUS’s cash and short-term investments stands at UK£1.12M for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of GUS’s operating efficiency ratios such as ROA here.
Does GUS’s liquid assets cover its short-term commitments?
With current liabilities at UK£337.00K, the company has been able to meet these obligations given the level of current assets of UK£3.68M, with a current ratio of 10.93x. Though, anything above 3x is considered high and could mean that GUS has too much idle capital in low-earning investments.
Does GUS face the risk of succumbing to its debt-load?With debt reaching 60.72% of equity, GUS 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. However, since GUS is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
GUS’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for GUS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Gusbourne to get a more holistic view of the stock by looking at:
- Historical Performance: What has GUS’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.