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Investors are always looking for growth in small-cap stocks like Genius Brands International, Inc. (NASDAQ:GNUS), with a market cap of US$15m. However, an important fact which most ignore is: how financially healthy is the business? Given that GNUS is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into GNUS here.
Does GNUS Produce Much Cash Relative To Its Debt?
GNUS's debt levels surged from US$2.7m to US$9.2m over the last 12 months , which accounts for long term debt. With this increase in debt, GNUS currently has US$3.6m remaining in cash and short-term investments to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of GNUS’s operating efficiency ratios such as ROA here.
Can GNUS pay its short-term liabilities?
Looking at GNUS’s US$8.9m in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$6.3m, with a current ratio of 0.7x. The current ratio is calculated by dividing current assets by current liabilities.
Can GNUS service its debt comfortably?
With a debt-to-equity ratio of 66%, GNUS can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. Though, since GNUS is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although GNUS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for GNUS's financial health. Other important fundamentals need to be considered alongside. You should continue to research Genius Brands International to get a better picture of the stock by looking at:
- Historical Performance: What has GNUS'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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.