Are Grindrod Shipping Holdings Ltd.’s (NASDAQ:GRIN) Interest Costs Too High?

While small-cap stocks, such as Grindrod Shipping Holdings Ltd. (NASDAQ:GRIN) with its market cap of US$116m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that GRIN is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into GRIN here.

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

GRIN has shrunken its total debt levels in the last twelve months, from US$150m to US$127m – this includes long-term debt. With this reduction in debt, GRIN’s cash and short-term investments stands at US$54m , ready to deploy 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of GRIN’s operating efficiency ratios such as ROA here.

Does GRIN’s liquid assets cover its short-term commitments?

With current liabilities at US$62m, it appears that the company has been able to meet these commitments with a current assets level of US$139m, leading to a 2.23x current account ratio. For Shipping companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Is GRIN’s debt level acceptable?

With debt reaching 42% of equity, GRIN 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. Though, since GRIN is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

GRIN’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. Since there is also no concerns around GRIN’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure GRIN has company-specific issues impacting its capital structure decisions. You should continue to research Grindrod Shipping Holdings to get a better picture of the small-cap by looking at:

1. Valuation: What is GRIN 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 GRIN is currently mispriced by the market.
2. Historical Performance: What has GRIN’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.
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 past 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. For errors that warrant correction please contact the editor at [email protected].