Is Del Frisco’s Restaurant Group Inc (NASDAQ:DFRG) A Financially Sound Company?
Investors are always looking for growth in small-cap stocks like Del Frisco’s Restaurant Group Inc (NASDAQ:DFRG), with a market cap of US$325.48M. However, an important fact which most ignore is: how financially healthy is the business? Since DFRG is loss-making right now, 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. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into DFRG here.
Does DFRG generate enough cash through operations?
Over the past year, DFRG has borrowed debt capital of around US$24.48M made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at US$4.59M for investing into the business. On top of this, DFRG has produced US$38.07M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 155.51%, indicating that DFRG’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 DFRG’s case, it is able to generate 1.56x cash from its debt capital.
Does DFRG’s liquid assets cover its short-term commitments?
Looking at DFRG’s most recent US$51.83M liabilities, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.71x, which is below the prudent industry ratio of 3x.
Can DFRG service its debt comfortably?
DFRG’s level of debt is appropriate relative to its total equity, at 12.95%. This range is considered safe as DFRG is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for DFRG, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
DFRG has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But, as shareholders, you should try and determine whether this level of debt is justified for DFRG, especially when liquidity may also be an issue. This is only a rough assessment of financial health, and I’m sure DFRG has company-specific issues impacting its capital structure decisions. I recommend you continue to research Del Frisco’s Restaurant Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for DFRG’s future growth? Take a look at our free research report of analyst consensus for DFRG’s outlook.
Valuation: What is DFRG 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 DFRG is currently mispriced by the market.
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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
