Yahoo Finance Is Golden Deeps Limited (ASX:GED) A Financially Sound Company?
Investors are always looking for growth in small-cap stocks like Golden Deeps Limited (ASX:GED), with a market cap of AU$7.20M. However, an important fact which most ignore is: how financially healthy is the business? Since GED is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into GED here.
How does GED’s operating cash flow stack up against its debt?
Over the past year, GED has ramped up its debt from AU$250.00K to AU$350.00K , which comprises of short- and long-term debt. With this rise in debt, GED’s cash and short-term investments stands at AU$98.14K for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of GED’s operating efficiency ratios such as ROA here.
Can GED meet its short-term obligations with the cash in hand?
With current liabilities at AU$79.65K, it seems that the business has been able to meet these commitments with a current assets level of AU$99.48K, leading to a 1.25x current account ratio. Usually, for Metals and Mining companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can GED service its debt comfortably?
Since total debt levels have outpaced equities, GED is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since GED is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
GED’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how GED has been performing in the past. I recommend you continue to research Golden Deeps to get a better picture of the stock by looking at:
Historical Performance: What has GED’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 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.
