While small-cap stocks, such as Great Panther Mining Limited (TSE:GPR) with its market cap of CA$337m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since GPR is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, these checks don't give you a full picture, so I suggest you dig deeper yourself into GPR here.
Does GPR Produce Much Cash Relative To Its Debt?
GPR has increased its debt level by about US$90m over the last 12 months accounting for long term debt. With this growth in debt, GPR currently has US$41m remaining in cash and short-term investments to keep the business going. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of GPR’s operating efficiency ratios such as ROA here.
Can GPR pay its short-term liabilities?
At the current liabilities level of US$109m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1x. The current ratio is the number you get when you divide current assets by current liabilities. For Metals and Mining companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does GPR face the risk of succumbing to its debt-load?
With debt reaching 45% of equity, GPR may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since GPR is currently loss-making, there’s a question of sustainability of its current operations. 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 GPR’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure GPR has company-specific issues impacting its capital structure decisions. I suggest you continue to research Great Panther Mining to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GPR’s future growth? Take a look at our free research report of analyst consensus for GPR’s outlook.
- Valuation: What is GPR 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 GPR is currently mispriced by the market.
- 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 email@example.com. 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.