Yahoo Finance Is Gamehost Inc’s (TSE:GH) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like Gamehost Inc (TSE:GH), with a market cap of CA$306.3m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into GH here.
Does GH produce enough cash relative to debt?
Over the past year, GH has reduced its debt from CA$29.0m to CA$26.6m , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at CA$15.1m for investing into the business. Additionally, GH has generated cash from operations of CA$23.9m over the same time period, resulting in an operating cash to total debt ratio of 89.8%, indicating that GH’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In GH’s case, it is able to generate 0.9x cash from its debt capital.
Can GH pay its short-term liabilities?
At the current liabilities level of CA$17.3m liabilities, it seems that the business has been able to meet these commitments with a current assets level of CA$19.3m, leading to a 1.12x current account ratio. Generally, for Hospitality companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is GH’s debt level acceptable?
GH’s level of debt is appropriate relative to its total equity, at 21.8%. GH is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether GH 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 GH’s, case, the ratio of 24.45x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving GH ample headroom to grow its debt facilities.
Next Steps:
GH’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure GH has company-specific issues impacting its capital structure decisions. I suggest you continue to research Gamehost to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GH’s future growth? Take a look at our free research report of analyst consensus for GH’s outlook.
Valuation: What is GH 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 GH 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.
