Goodrich Petroleum Corporation (GDP): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Goodrich Petroleum Corporation (AMEX:GDP), with a market cap of USD $112.45M. However, an important fact which most ignore is: how financially healthy is the business? Oil, Gas and Consumable Fuels companies, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into GDP here.
Does GDP generate an acceptable amount of cash through operations?
GDP’s debt levels have fallen from $466M to $47M over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at $37M , ready to deploy into the business. However, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of GDP’s operating efficiency ratios such as ROA here.
Does GDP’s liquid assets cover its short-term commitments?
At the current liabilities level of $18M liabilities, the company has been able to meet these commitments with a current assets level of $47M, leading to a 2.56x current account ratio. Generally, for oil, gas and consumable fuels companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can GDP service its debt comfortably?
With debt reaching 92.82% of equity, GDP may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
Are you a shareholder? GDP’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that its financial position may change. You should always be keeping on top of market expectations for GDP’s future growth on our free analysis platform.
Are you a potential investor? With a high level of debt on its balance sheet, GDP could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for GDP to increase its operational efficiency. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. As a following step, you should take a look at GDP’s past performance analysis on our free platform to conclude on GDP’s financial health.
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.
