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What You Must Know About Gateway Lifestyle Group’s (ASX:GTY) Financial Strength

Gavin Beck

Gateway Lifestyle Group (ASX:GTY) is a small-cap stock with a market capitalization of A$626.69M. 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? So, understanding the company’s financial health becomes vital, 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. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into GTY here.

How does GTY’s operating cash flow stack up against its debt?

GTY’s debt levels surged from A$103.4M to A$178.4M over the last 12 months – this includes both the current and long-term debt. With this increase in debt, GTY’s cash and short-term investments stands at A$22.6M , ready to deploy into the business. Moreover, GTY has produced A$31.7M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 17.79%, signalling that GTY’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In GTY’s case, it is able to generate 0.18x cash from its debt capital.

Does GTY’s liquid assets cover its short-term commitments?

Looking at GTY’s most recent A$50.2M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of A$48.3M, leading to a 0.96x current account ratio. which is under the appropriate industry ratio of 3x.

ASX:GTY Historical Debt Jan 22nd 18

Can GTY service its debt comfortably?

With debt at 30.12% of equity, GTY may be thought of as appropriately levered. This range is considered safe as GTY is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if GTY’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For GTY, the ratio of 10.14x suggests that interest is comfortably 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:

GTY’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, the company may struggle to meet its near term liabilities should an adverse event occur. I admit this is a fairly basic analysis for GTY’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Gateway Lifestyle Group to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for GTY’s future growth? Take a look at our free research report of analyst consensus for GTY’s outlook.

2. Valuation: What is GTY 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 GTY is currently mispriced by the market.

3. 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 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.