Yahoo Finance GetSwift Limited (ASX:GSW): Time For A Financial Health Check
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The direct benefit for GetSwift Limited (ASX:GSW), which sports a zero-debt capital structure, to include debt in its capital structure is the reduced cost of capital. However, the trade-off is GSW will have to adhere to stricter debt covenants and have less financial flexibility. While GSW has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
View our latest analysis for GetSwift
Is financial flexibility worth the lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. But the downside of having debt in a company’s balance sheet is the debtholder’s higher claim on its assets in the case of liquidation, as well as stricter capital management requirements. GSW’s absence of debt on its balance sheet may be due to lack of access to cheaper capital, or it may simply believe low cost is not worth sacrificing financial flexibility. However, choosing flexibility over capital returns is logical only if it’s a high-growth company. GSW delivered a strikingly high triple-digit revenue growth over the past year, therefore the company’s decision to choose financial flexibility is justified as it may need headroom to borrow in the future to sustain high growth.
Does GSW’s liquid assets cover its short-term commitments?
Since GetSwift doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at GSW’s AU$5.0m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of AU$98m, leading to a 19.68x current account ratio. Having said that, many consider a ratio above 3x to be high.
Next Steps:
Having no debt on the books means GSW has more financial freedom to keep growing at its current fast rate. Since there is also no concerns around GSW’s liquidity needs, this may be its optimal capital structure for the time being. Moving forward, its financial position may change. I admit this is a fairly basic analysis for GSW’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research GetSwift to get a better picture of the stock by looking at:
Historical Performance: What has GSW’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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
