Goldgroup Mining Inc (TSE:GGA) is a small-cap stock with a market capitalization of CA$10m. 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 crucial, 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. However, I know these factors are very high-level, so I recommend you dig deeper yourself into GGA here.
How does GGA’s operating cash flow stack up against its debt?
Over the past year, GGA has ramped up its debt from US$627k to US$1.2m , which comprises of short- and long-term debt. With this rise in debt, GGA currently has US$1.1m remaining in cash and short-term investments for investing into the business. On top of this, GGA has produced cash from operations of US$2.1m over the same time period, resulting in an operating cash to total debt ratio of 172%, indicating that GGA’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In GGA’s case, it is able to generate 1.72x cash from its debt capital.
Can GGA pay its short-term liabilities?
At the current liabilities level of US$5.8m liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$3.8m, with a current ratio of 0.66x.
Is GGA’s debt level acceptable?
GGA’s level of debt is appropriate relative to its total equity, at 15%. GGA is not taking on too much debt commitment, which may be constraining for future growth.
GGA’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, as shareholders, you should try and determine whether this level of debt is justified for GGA, especially if meeting short-term obligations could also bring about issues. I admit this is a fairly basic analysis for GGA’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Goldgroup Mining to get a more holistic view of the stock by looking at:
- Valuation: What is GGA 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 GGA is currently mispriced by the market.
- Historical Performance: What has GGA’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.
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.