Yahoo Finance How Financially Strong Is The Go-Ahead Group plc (LON:GOG)?
While small-cap stocks, such as The Go-Ahead Group plc (LSE:GOG) with its market cap of UK£790.28M, 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. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I suggest you dig deeper yourself into GOG here.
Does GOG generate an acceptable amount of cash through operations?
GOG’s debt levels surged from UK£312.40M to UK£359.10M over the last 12 months , which is made up of current and long term debt. With this increase in debt, GOG currently has UK£590.20M remaining in cash and short-term investments for investing into the business. On top of this, GOG has generated cash from operations of UK£144.10M in the last twelve months, leading to an operating cash to total debt ratio of 40.13%, signalling that GOG’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In GOG’s case, it is able to generate 0.4x cash from its debt capital.
Does GOG’s liquid assets cover its short-term commitments?
Looking at GOG’s most recent UK£1.10B liabilities, it seems that the business is not able to meet these obligations given the level of current assets of UK£943.50M, with a current ratio of 0.86x below the prudent level of 3x.
Does GOG face the risk of succumbing to its debt-load?
GOG is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether GOG 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 GOG’s, case, the ratio of 11.46x 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:
GOG’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure GOG has company-specific issues impacting its capital structure decisions. I suggest you continue to research Go-Ahead Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GOG’s future growth? Take a look at our free research report of analyst consensus for GOG’s outlook.
Valuation: What is GOG 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 GOG 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.
