AIM:GCM Historical Debt Nov 2nd 17
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These catastrophes does not mean the company can stop servicing its debt obligations. Can GCM pay off what it owes to its debtholder by using only cash from its operational activities? GCM’s recent operating cash flow was -0.25 times its debt within the past year. This means what GCM can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at GCM’s operations at this point in time.
Can GCM pay its short-term liabilities?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. In times of adverse events, GCM may need to liquidate its short-term assets to pay these immediate obligations. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that GCM does not have enough liquid assets on hand to meet its upcoming liabilities. Though this is a common practice, since cash is better utilized invested in the business or returned to shareholders, it does raise some concerns for investors should adverse events arise.
Does GCM face the risk of succumbing to its debt-load?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. In the case of GCM, the debt-to-equity ratio is 4.38%, which means debt is low and does not pose any significant threat to the company’s operations.
Next Steps:
Are you a shareholder? GCM’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. Furthermore, the company may struggle to meet its near term liabilities should an adverse event occur. Given that its financial position may be different. I suggest keeping abreast of market expectations for GCM’s future growth on our free analysis platform.
Are you a potential investor? GCM appears to have a sensible level of debt, meaning there’s some room to take on more debt if needed. But its current cash flow coverage of existing debt, in addition to the low liquidity, is concerning. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of GCM’s track record. I encourage you to continue your research by taking a look at GCM’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.