Investors are always looking for growth in small-cap stocks like Gaming Partners International Corporation (NASDAQ:GPIC), with a market cap of USD $89.00M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, 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 recommend you dig deeper yourself into GPIC here.
Does GPIC generate an acceptable amount of cash through operations?
Over the past year, GPIC has reduced its debt from $9.3M to $8.0M , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at $10.9M for investing into the business. On top of this, GPIC has produced $3.5M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 0.44x, meaning that GPIC’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In GPIC’s case, it is able to generate 0.44x cash from its debt capital.
Can GPIC pay its short-term liabilities?
At the current liabilities level of $14.7M liabilities, it seems that the business has been able to meet these commitments with a current assets level of $39.1M, leading to a 2.65x current account ratio. For hotels, restaurants and leisure companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can GPIC service its debt comfortably?
With a debt-to-equity ratio of 11.21%, GPIC’s debt level may be seen as prudent. GPIC is not taking on too much debt commitment, which may be constraining for future growth. We can test if GPIC’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For GPIC, the ratio of 26.81x suggests that interest is excessively covered, which means that debtors may be willing to loan the company more money, giving GPIC ample headroom to grow its debt facilities.
Next Steps:
Are you a shareholder? GPIC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. In the future, its financial position may be different. I recommend keeping abreast of market expectations for GPIC’s future growth on our free analysis platform.