Investors are always looking for growth in small-cap stocks like Gran Colombia Gold Corp. (TSE:GCM), with a market cap of CA$142m. However, an important fact which most ignore is: how financially healthy is the business? Given that GCM is not presently profitable, it’s essential to understand 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, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into GCM here.
How does GCM’s operating cash flow stack up against its debt?
Over the past year, GCM has reduced its debt from US$94m to US$81m , which includes long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$30m , ready to deploy into the business. Additionally, GCM has produced cash from operations of US$74m over the same time period, leading to an operating cash to total debt ratio of 91%, meaning that GCM’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 positive earnings. In GCM’s case, it is able to generate 0.91x cash from its debt capital.
Can GCM meet its short-term obligations with the cash in hand?
At the current liabilities level of US$63m, it seems that the business has been able to meet these commitments with a current assets level of US$69m, leading to a 1.1x current account ratio. Usually, for Metals and Mining companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can GCM service its debt comfortably?
With a debt-to-equity ratio of 31%, GCM’s debt level may be seen as prudent. GCM is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for GCM, and the company also has the ability and headroom to increase debt if needed going forward.
GCM’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure GCM has company-specific issues impacting its capital structure decisions. I recommend you continue to research Gran Colombia Gold to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GCM’s future growth? Take a look at our free research report of analyst consensus for GCM’s outlook.
- Valuation: What is GCM 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 GCM 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.