What You Must Know About Gannett Co Inc’s (NYSE:GCI) Financial Strength
Investors are always looking for growth in small-cap stocks like Gannett Co Inc (NYSE:GCI), with a market cap of US$1.1b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into GCI here.
How much cash does GCI generate through its operations?
Over the past year, GCI has reduced its debt from US$385m to US$337m , which comprises of short- and long-term debt. With this debt repayment, GCI currently has US$210m remaining in cash and short-term investments for investing into the business. On top of this, GCI has produced cash from operations of US$187m over the same time period, resulting in an operating cash to total debt ratio of 56%, indicating that GCI’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In GCI’s case, it is able to generate 0.56x cash from its debt capital.
Does GCI’s liquid assets cover its short-term commitments?
With current liabilities at US$538m, it appears that the company has been able to meet these commitments with a current assets level of US$657m, leading to a 1.22x current account ratio. Generally, for Media companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is GCI’s debt level acceptable?
With debt at 30% of equity, GCI may be thought of as appropriately levered. GCI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether GCI is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In GCI’s, case, the ratio of 9.25x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
GCI has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for GCI’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Gannett to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GCI’s future growth? Take a look at our free research report of analyst consensus for GCI’s outlook.
Valuation: What is GCI 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 GCI 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.
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 editorial-team@simplywallst.com.
