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Good Times Restaurants Inc. (NASDAQ:GTIM) is a small-cap stock with a market capitalization of US$34m. 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 GTIM is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into GTIM here.
How does GTIM’s operating cash flow stack up against its debt?
Over the past year, GTIM has ramped up its debt from US$4.9m to US$10m , which includes long-term debt. With this growth in debt, GTIM’s cash and short-term investments stands at US$2.4m , ready to deploy into the business. Additionally, GTIM has generated US$5.8m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 57%, indicating that GTIM’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In GTIM’s case, it is able to generate 0.57x cash from its debt capital.
Can GTIM meet its short-term obligations with the cash in hand?
At the current liabilities level of US$6.4m, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$5.2m, with a current ratio of 0.81x.
Does GTIM face the risk of succumbing to its debt-load?
GTIM’s level of debt is appropriate relative to its total equity, at 28%. This range is considered safe as GTIM is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with GTIM, and the company has plenty of headroom and ability to raise debt should it need to in the future.
GTIM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Though 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 GTIM’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Good Times Restaurants to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GTIM’s future growth? Take a look at our free research report of analyst consensus for GTIM’s outlook.
- Historical Performance: What has GTIM’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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.