Green Plains Inc. (NASDAQ:GPRE) is a small-cap stock with a market capitalization of US$702m. 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 essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. We’ll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into GPRE here.
GPRE’s Debt (And Cash Flows)
GPRE has shrunk its total debt levels in the last twelve months, from US$1.4b to US$891m – this includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$252m to keep the business going. Moreover, GPRE has produced US$39m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 4.4%, signalling that GPRE’s current level of operating cash is not high enough to cover debt.
Can GPRE pay its short-term liabilities?
With current liabilities at US$834m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.45x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Oil and Gas companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does GPRE face the risk of succumbing to its debt-load?
GPRE is a relatively highly levered company with a debt-to-equity of 84%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies.
Although GPRE’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around GPRE’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for GPRE’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Green Plains to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GPRE’s future growth? Take a look at our free research report of analyst consensus for GPRE’s outlook.
- Historical Performance: What has GPRE’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.
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