Yahoo Finance What does Greencore Group plc’s (LON:GNC) Balance Sheet Tell Us About Its Future?
While small-cap stocks, such as Greencore Group plc (LON:GNC) with its market cap of UK£1.28b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into GNC here.
How much cash does GNC generate through its operations?
GNC has built up its total debt levels in the last twelve months, from UK£380.60m to UK£0 , which is made up of current and long term debt. With this increase in debt, GNC’s cash and short-term investments stands at UK£19.80m for investing into the business. Additionally, GNC has produced UK£118.20m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 21.36%, indicating that GNC’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 GNC’s case, it is able to generate 0.21x cash from its debt capital.
Can GNC meet its short-term obligations with the cash in hand?
At the current liabilities level of UK£479.00m liabilities, it seems that the business is not able to meet these obligations given the level of current assets of UK£356.80m, with a current ratio of 0.74x below the prudent level of 3x.
Does GNC face the risk of succumbing to its debt-load?
GNC is a relatively highly levered company with a debt-to-equity of 80.35%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In GNC’s case, the ratio of 4.73x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving GNC ample headroom to grow its debt facilities.
Next Steps:
GNC’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for GNC’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Greencore Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GNC’s future growth? Take a look at our free research report of analyst consensus for GNC’s outlook.
Valuation: What is GNC 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 GNC 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 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.
