Globus Maritime Limited (NASDAQ:GLBS) is a small-cap stock with a market capitalization of US$33.93M. 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? Since GLBS is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into GLBS here.
How does GLBS’s operating cash flow stack up against its debt?
GLBS has shrunken its total debt levels in the last twelve months, from US$78.25M to US$65.57M – this includes both the current and long-term debt. With this debt payback, GLBS currently has US$163.00K remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of GLBS’s operating efficiency ratios such as ROA here.
Can GLBS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$31.14M liabilities, it seems that the business has not been able to meet these commitments with a current assets level of US$2.15M, leading to a 0.069x current account ratio. which is under the appropriate industry ratio of 3x.
Can GLBS service its debt comfortably?
Since total debt levels have outpaced equities, GLBS is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since GLBS is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
GLBS’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure GLBS has company-specific issues impacting its capital structure decisions. I recommend you continue to research Globus Maritime to get a more holistic view of the stock by looking at:
1. Valuation: What is GLBS 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 GLBS is currently mispriced by the market.
2. Historical Performance: What has GLBS’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.
3. 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.