While small-cap stocks, such as Gusbourne PLC (LON:GUS) with its market cap of UK£26.38m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that GUS is not presently profitable, it’s crucial to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I suggest you dig deeper yourself into GUS here.
How does GUS’s operating cash flow stack up against its debt?
GUS has shrunken its total debt levels in the last twelve months, from UK£6.54m to UK£4.78m , which comprises of short- and long-term debt. With this reduction in debt, GUS’s cash and short-term investments stands at UK£1.46m , 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. 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.
Can GUS pay its short-term liabilities?
With current liabilities at UK£2.47m, it appears that the company has been able to meet these commitments with a current assets level of UK£5.23m, leading to a 2.12x current account ratio. For Beverage companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can GUS service its debt comfortably?With debt at 38.75% of equity, GUS may be thought of as appropriately levered. GUS is not taking on too much debt commitment, which may be constraining for future growth. GUS’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.
GUS’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure GUS has company-specific issues impacting its capital structure decisions. I suggest you continue to research Gusbourne to get a better picture 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.