What You Must Know About Games Workshop Group PLC's (LON:GAW) Financial Health
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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Games Workshop Group PLC (LON:GAW) with a market-capitalization of UK£1.6b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at GAW’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into GAW here.
See our latest analysis for Games Workshop Group
Does GAW face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For GAW, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with GAW, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can GAW meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Games Workshop Group has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of UK£25m, it seems that the business has been able to meet these commitments with a current assets level of UK£70m, leading to a 2.8x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Leisure 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.
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GAW has zero-debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and its investors, however, some degree of debt could also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I'm sure GAW has company-specific issues impacting its capital structure decisions. You should continue to research Games Workshop Group to get a better picture of the stock by looking at:
Valuation: What is GAW 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 GAW is currently mispriced by the market.
Historical Performance: What has GAW'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 editorial-team@simplywallst.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.
