Genesis Land Development Corp (TSE:GDC): Time For A Financial Health Check
Genesis Land Development Corp (TSE:GDC) is a small-cap stock with a market capitalization of CA$169.55m. 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 vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into GDC here.
How much cash does GDC generate through its operations?
GDC’s debt levels have fallen from CA$43.30m to CA$30.14m over the last 12 months – this includes both the current and long-term debt. With this debt repayment, GDC currently has CA$23.59m remaining in cash and short-term investments , ready to deploy into the business. Moreover, GDC has produced CA$46.91m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 155.66%, indicating that GDC’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In GDC’s case, it is able to generate 1.56x cash from its debt capital.
Can GDC meet its short-term obligations with the cash in hand?
With current liabilities at CA$34.54m, it seems that the business has been able to meet these obligations given the level of current assets of CA$293.27m, with a current ratio of 8.49x. Though, anything above 3x is considered high and could mean that GDC has too much idle capital in low-earning investments.
Is GDC’s debt level acceptable?
With a debt-to-equity ratio of 9.88%, GDC’s debt level is relatively low. GDC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether GDC is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In GDC’s, case, the ratio of 22.61x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as GDC’s high interest coverage is seen as responsible and safe practice.
Next Steps:
GDC’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how GDC has been performing in the past. You should continue to research Genesis Land Development to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GDC’s future growth? Take a look at our free research report of analyst consensus for GDC’s outlook.
Valuation: What is GDC 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 GDC 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.
