How Financially Strong Is Goals Soccer Centres plc (LON:GOAL)?
Investors are always looking for growth in small-cap stocks like Goals Soccer Centres plc (LON:GOAL), with a market cap of UK£52.3m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into GOAL here.
How much cash does GOAL generate through its operations?
GOAL’s debt levels surged from UK£25.9m to UK£32.4m over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, GOAL’s cash and short-term investments stands at UK£2.6m for investing into the business. Moreover, GOAL has generated cash from operations of UK£6.2m during the same period of time, leading to an operating cash to total debt ratio of 19.1%, signalling that GOAL’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In GOAL’s case, it is able to generate 0.19x cash from its debt capital.
Does GOAL’s liquid assets cover its short-term commitments?
At the current liabilities level of UK£5.6m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of UK£8.0m, with a current ratio of 1.43x. Usually, for Hospitality companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does GOAL face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 32.9%, GOAL’s debt level may be seen as prudent. This range is considered safe as GOAL is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if GOAL’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For GOAL, the ratio of 17.51x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
GOAL’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 exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for GOAL’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Goals Soccer Centres to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GOAL’s future growth? Take a look at our free research report of analyst consensus for GOAL’s outlook.
Valuation: What is GOAL 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 GOAL 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 editorial-team@simplywallst.com.
