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Is Green Cross Health Limited’s (NZE:GXH) Balance Sheet Strong Enough To Weather A Storm?

While small-cap stocks, such as Green Cross Health Limited (NZSE:GXH) with its market cap of NZ$234.36M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Consumer Retailing industry facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into GXH here.

How does GXH’s operating cash flow stack up against its debt?

Over the past year, GXH has reduced its debt from NZ$72.48M to NZ$65.54M , which is made up of current and long term debt. With this reduction in debt, the current cash and short-term investment levels stands at NZ$18.20M for investing into the business. Additionally, GXH has produced NZ$29.92M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 45.65%, indicating that GXH’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 GXH’s case, it is able to generate 0.46x cash from its debt capital.

Can GXH pay its short-term liabilities?

With current liabilities at NZ$94.87M, it seems that the business is not able to meet these obligations given the level of current assets of NZ$85.77M, with a current ratio of 0.9x below the prudent level of 3x.

NZSE:GXH Historical Debt May 24th 18
NZSE:GXH Historical Debt May 24th 18

Does GXH face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 43.53%, GXH can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether GXH is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In GXH’s, case, the ratio of 16.42x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving GXH ample headroom to grow its debt facilities.

Next Steps:

GXH’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure GXH has company-specific issues impacting its capital structure decisions. You should continue to research Green Cross Health to get a better picture of the stock by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for GXH’s future growth? Take a look at our free research report of analyst consensus for GXH’s outlook.

  2. Valuation: What is GXH 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 GXH is currently mispriced by the market.

  3. 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.