Yahoo Finance Is Graines Voltz’s (EPA:GRVO) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like Graines Voltz (ENXTPA:GRVO), with a market cap of €60.45M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into GRVO here.
Does GRVO generate enough cash through operations?
Over the past year, GRVO has reduced its debt from €19.54M to €15.64M – this includes both the current and long-term debt. With this debt repayment, GRVO’s cash and short-term investments stands at €12.76M for investing into the business. Moreover, GRVO has produced cash from operations of €12.84M during the same period of time, resulting in an operating cash to total debt ratio of 82.11%, indicating that GRVO’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In GRVO’s case, it is able to generate 0.82x cash from its debt capital.
Does GRVO’s liquid assets cover its short-term commitments?
Looking at GRVO’s most recent €21.71M liabilities, the company has been able to meet these obligations given the level of current assets of €49.67M, with a current ratio of 2.29x. Generally, for Retail Distributors companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does GRVO face the risk of succumbing to its debt-load?
With debt reaching 45.26% of equity, GRVO may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 GRVO’s case, the ratio of 22.69x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving GRVO ample headroom to grow its debt facilities.
Next Steps:
Although GRVO’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how GRVO has been performing in the past. I recommend you continue to research Graines Voltz to get a more holistic view of the small-cap by looking at:
Valuation: What is GRVO 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 GRVO is currently mispriced by the market.
Historical Performance: What has GRVO’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.
