Yahoo Finance What does Grande West Transportation Group Inc’s (CVE:BUS) Balance Sheet Tell Us About Its Future?
Investors are always looking for growth in small-cap stocks like Grande West Transportation Group Inc (CVE:BUS), with a market cap of CA$78.7m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is 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 BUS here.
Does BUS produce enough cash relative to debt?
BUS has built up its total debt levels in the last twelve months, from CA$7.4m to CA$14.2m , which comprises of short- and long-term debt. With this rise in debt, BUS currently has CA$4.9m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of BUS’s operating efficiency ratios such as ROA here.
Can BUS meet its short-term obligations with the cash in hand?
Looking at BUS’s most recent CA$35.1m liabilities, it appears that the company has been able to meet these commitments with a current assets level of CA$51.4m, leading to a 1.46x current account ratio. For Machinery companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can BUS service its debt comfortably?
With a debt-to-equity ratio of 77.8%, BUS can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether BUS 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 BUS’s, case, the ratio of 2.46x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as BUS’s low interest coverage already puts the company at higher risk of default.
Next Steps:
At its current level of cash flow coverage, BUS has room for improvement to better cushion for events which may require debt repayment. However, 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 BUS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Grande West Transportation Group to get a better picture of the stock by looking at:
Valuation: What is BUS 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 BUS is currently mispriced by the market.
Historical Performance: What has BUS’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.
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.
