Breaking Down Graham Corporation (GHM) Financial Health: Key Insights for Investors

Are you keeping a close watch on Graham Corporation's (GHM) financial performance? With a market capitalization of $325.34 million as of December 31, 2024, and recent fiscal year 2024 sales reaching a record $185.5 million, it's crucial to understand the key factors driving its financial health. How has the company managed to achieve a gross profit margin of 24.8% in the third quarter of fiscal year 2025, and what impact does a substantial backlog of $385 million have on its future revenue? Dive in to explore these insights and more, ensuring you're equipped with the knowledge to make informed investment decisions.

Graham Corporation (GHM) Revenue Analysis

Understanding Graham Corporation's (GHM) revenue streams is crucial for investors seeking insights into the company's financial health and future prospects. Breaking Down Graham Corporation (GHM) Financial Health: Key Insights for Investors

Here's a breakdown of Graham Corporation's (GHM) primary revenue sources:

• Products: Graham Corporation designs and manufactures custom-engineered vacuum and heat transfer equipment.
• Services: The company offers services related to its equipment, likely including maintenance, repair, and potentially installation or training.
• Regions: While specific regional breakdowns are not detailed, Graham Corporation has a global presence, serving the defense, space, energy, and process industries.

Graham Corporation serves several key market segments:

• Defense: A significant and growing segment, driven by U.S. Navy programs and other defense-related projects.
• Space: An area of increasing focus and growth for the company.
• Energy: Includes traditional energy sectors like oil refining and emerging areas like alternative energy.
• Chemical and other process industries: A diverse sector utilizing Graham Corporation's heat transfer and vacuum technologies.

Graham Corporation has shown a notable shift towards the defense and space segments, increasing its revenue contribution from 25% in fiscal year 2021 to 61% in fiscal year 2024.

Analyzing Graham Corporation's (GHM) year-over-year revenue growth rate reveals important trends:

• Fiscal Year 2022: 25.98%
• Fiscal Year 2023: 27.93%
• Fiscal Year 2024: 18.09%

In fiscal year 2024, Graham Corporation's revenue reached $185.5 million, marking an 18.09% increase compared to the previous year.

The acquisition of Barber Nichols in fiscal year 2022 significantly boosted revenue, contributing approximately 49% to the increase, while the legacy business experienced a contraction of around 23%.

Here's a summary of Graham Corporation's revenue streams by market segment based on the SWOT analysis:

As of December 31, 2024, Graham Corporation's revenue (TTM) is $199.62 million.

Graham Corporation (GHM) Profitability Metrics

Assessing the financial health of Graham Corporation (GHM) requires a detailed examination of its profitability metrics. Profitability, the capacity to generate earnings relative to revenue, assets, and equity, is a critical indicator of a company's overall performance and financial stability. By analyzing key profitability ratios and trends, investors can gain valuable insights into GHM's operational efficiency, cost management strategies, and ability to create shareholder value.

Here's an overview of Graham Corporation's profitability, focusing on gross profit, operating profit, and net profit margins:

• Gross Profit: Gross profit is the revenue remaining after deducting the cost of goods sold (COGS). It indicates how efficiently a company manages its production costs.
• Operating Profit: Operating profit, calculated as gross profit less operating expenses (such as selling, general, and administrative costs), reflects the profitability of a company's core business operations before considering interest and taxes.
• Net Profit: Net profit is the bottom line, representing the profit remaining after all expenses, including interest, taxes, and other non-operating items, have been deducted from revenue.

To provide a clearer picture, here's a hypothetical overview of GHM's profitability metrics, based on available information and industry averages:

Trends in Profitability Over Time: Examining trends in profitability over several periods provides insights into whether a company's profitability is improving, declining, or remaining stable. Consistent improvement in profit margins indicates effective management and a strong competitive position. Analyzing Graham Corporation’s financial statements over the past three years reveals gradual improvements in gross profit margin, operating profit margin, and net profit margin. This trend suggests enhanced operational efficiency and effective cost management strategies.

Comparison of Profitability Ratios with Industry Averages: Comparing a company's profitability ratios with industry averages helps assess its relative performance. If a company's profit margins are higher than the industry average, it may indicate a competitive advantage. If they are lower, it may signal areas for improvement. Graham Corporation's profitability ratios are benchmarked against those of its industry peers to evaluate its competitive positioning and identify areas for potential enhancement.

Analysis of Operational Efficiency: Operational efficiency plays a crucial role in driving profitability. Efficient cost management and optimized resource utilization can lead to higher profit margins. Monitoring operational efficiency metrics, such as cost of goods sold (COGS) as a percentage of revenue and operating expenses as a percentage of revenue, provides valuable insights into a company's ability to control costs and improve profitability.

You might also be interested in: Mission Statement, Vision, & Core Values of Graham Corporation (GHM).

Graham Corporation (GHM) Debt vs. Equity Structure

Understanding how Graham Corporation (GHM) finances its operations and growth is crucial for investors. The balance between debt and equity reveals insights into the company's financial strategy, risk profile, and long-term sustainability. Here's a breakdown of GHM's debt levels, ratios, and financing activities.

As of the fiscal year 2024, Graham Corporation's financial structure includes a mix of debt and equity. Analyzing the specifics of their debt helps to understand the company’s leverage and financial commitments.

Overview of Graham Corporation's debt levels:

• Long-term Debt: Graham Corporation's long-term debt stood at $27.3 million as of December 29, 2024.
• Short-term Debt: The company's short-term debt, which includes the current portion of long-term debt and other short-term borrowings, also plays a role in its immediate financial obligations.

The debt-to-equity ratio is a key metric to assess the proportion of debt and equity used to finance the company's assets. It provides insights into the company's financial leverage and risk. Here’s how GHM’s ratio compares:

• As of December 29, 2024, Graham Corporation's debt-to-equity ratio is approximately 0.64. This ratio is calculated by dividing the total liabilities by the total equity.
• A debt-to-equity ratio of 0.64 suggests that Graham Corporation uses $0.64 of debt for every $1 of equity.

Recent activities in debt financing can significantly impact a company's financial health. Here's what's been happening with Graham Corporation:

• Debt Issuances: In February 2023, Graham Corporation amended its credit agreement, increasing the revolving credit facility from $25 million to $40 million, with a $10 million term loan.
• Refinancing Activity: The amendment and restatement of the credit agreement in February 2023 extended the maturity date to February 28, 2028.

Balancing debt and equity is critical for sustainable growth. Too much debt can increase financial risk, while too little may limit growth opportunities. Graham Corporation manages this balance through strategic financial decisions.

• Graham Corporation strategically uses debt to fund operations and growth, while maintaining a reasonable debt-to-equity ratio. The company’s ability to manage its debt is evident from its actions.
• The company’s approach includes maintaining a mix of debt and equity to ensure financial flexibility and stability.

Here is a table summarizing Graham Corporation's key debt and equity figures for fiscal year 2024:

Understanding these elements provides a clearer picture of Graham Corporation's financial strategies and overall financial health. For more detailed insights, you can read: Breaking Down Graham Corporation (GHM) Financial Health: Key Insights for Investors.

Graham Corporation (GHM) Liquidity and Solvency

Analyzing Graham Corporation's (GHM) financial health requires a close look at its liquidity and solvency positions. Liquidity refers to the company's ability to meet its short-term obligations, while solvency assesses its ability to meet long-term obligations. Key metrics like current and quick ratios, working capital trends, and cash flow statements provide insights into these areas.

Assessing Graham Corporation's Liquidity:

• Current and Quick Ratios: These ratios measure a company's ability to pay off its short-term liabilities with its short-term assets.
• Analysis of Working Capital Trends: Working capital, the difference between current assets and current liabilities, indicates a company's operational efficiency and short-term financial health.
• Cash Flow Statements Overview: Examining cash flow trends from operating, investing, and financing activities reveals how well a company generates and manages cash.
• Potential Liquidity Concerns or Strengths: Identifying any red flags or positive indicators in the company's liquidity position is crucial for investors.

To provide a clearer picture of Graham Corporation’s (GHM) liquidity, let’s delve into specific financial data. According to the Graham Corporation’s (GHM) most recent 2024 fiscal year data:

• The current ratio stands at 2.2, indicating a healthy ability to cover short-term liabilities with current assets.
• The quick ratio, which excludes inventory from current assets, is at 1.4, still suggesting a reasonably strong liquidity position.

These ratios suggest that Graham Corporation (GHM) is well-positioned to meet its short-term obligations. However, it’s essential to consider these figures in the context of industry benchmarks and historical trends.

Working Capital Trends

Analyzing the working capital trends provides additional insights. For the fiscal year 2024, Graham Corporation (GHM) reported a working capital of approximately $63.1 million. This figure represents the difference between the company's current assets of $114.3 million and current liabilities of $51.2 million. Monitoring these figures over time can reveal whether the company is efficiently managing its short-term assets and liabilities.

Cash Flow Statements Overview

The cash flow statement is a critical tool for assessing a company's liquidity. It categorizes cash flows into three main activities:

• Operating Activities: Cash generated or used from the company's core business operations.
• Investing Activities: Cash used for investments in assets, such as property, plant, and equipment (PP&E).
• Financing Activities: Cash flows related to debt, equity, and dividends.

For the fiscal year 2024, Graham Corporation (GHM) reported the following:

The positive cash flow from operating activities indicates that Graham Corporation (GHM) is generating cash from its core business, which is a positive sign. The use of cash in investing activities suggests ongoing investments in the company's future, while the use of cash in financing activities could be due to debt repayments or dividend payouts.

Potential Liquidity Concerns or Strengths

Overall, Graham Corporation's (GHM) liquidity position appears stable. The healthy current and quick ratios, positive working capital, and positive cash flow from operating activities suggest that the company is managing its short-term finances effectively. However, investors should continue to monitor these metrics and consider them in the context of the company's industry and overall financial performance.

Understanding a company's mission, vision, and core values can also provide insights into its long-term strategy and financial health. You can explore more about Graham Corporation (GHM) through this link: Mission Statement, Vision, & Core Values of Graham Corporation (GHM).

Graham Corporation (GHM) Valuation Analysis

Assessing whether Graham Corporation (GHM) is overvalued or undervalued involves examining several key financial metrics and market indicators. These include price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, stock price trends, dividend yield and payout ratios (if applicable), and analyst consensus.

As of the latest available data, Graham Corporation's valuation can be analyzed through these lenses:

• Price-to-Earnings (P/E) Ratio: The P/E ratio helps investors understand how much they are paying for each dollar of earnings. A higher P/E ratio might suggest that a stock is overvalued, while a lower one could indicate undervaluation, relative to its peers or historical averages.
• Price-to-Book (P/B) Ratio: The P/B ratio compares a company's market capitalization to its book value. A lower P/B ratio can suggest that the stock is undervalued.
• Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: EV/EBITDA provides a more comprehensive valuation measure than P/E, as it takes into account debt and capital expenditures. A lower EV/EBITDA ratio may indicate that a company is undervalued.

Analyzing Graham Corporation's stock price trends over the last 12 months (or longer) provides insights into market sentiment and investor confidence. Key considerations include:

• Stock Price Trends: Examining the stock's performance over the past year helps in understanding its volatility and overall trend.
• 52-Week High and Low: These values provide a range within which the stock has traded, indicating potential resistance and support levels.

Currently, Graham Corporation does not offer a dividend yield, so dividend payout ratios are not applicable.

To provide a clearer picture, a comparison of valuation ratios with industry peers and historical averages is essential. The following hypothetical table illustrates how GHM's valuation metrics might stack up against its competitors:

Based on this hypothetical data, Graham Corporation's ratios are slightly higher than the industry average, which might suggest it is relatively overvalued compared to its peers. However, this should be considered alongside growth prospects and other qualitative factors.

For further insights into Graham Corporation's investor profile, consider reading: Exploring Graham Corporation (GHM) Investor Profile: Who’s Buying and Why?

Graham Corporation (GHM) Risk Factors

Graham Corporation (GHM) faces a variety of internal and external risks that could significantly impact its financial health. These risks span industry competition, regulatory changes, market conditions, and specific operational and strategic challenges.

Industry Competition: The industries in which Graham Corporation operates are highly competitive. This competition can lead to pressure on pricing, reduced profit margins, and the potential loss of market share. Maintaining a competitive edge requires continuous innovation, efficient operations, and strong customer relationships.

Regulatory Changes: Changes in environmental regulations, trade policies, or other governmental rules can create both opportunities and challenges. Compliance with new regulations may require additional investment, while failure to comply can result in fines, penalties, or legal action. Monitoring and adapting to regulatory changes are crucial for sustained financial performance.

Market Conditions: Economic downturns, fluctuations in demand, and changes in customer preferences can all impact Graham Corporation’s financial results. A decrease in capital spending by key customers, for example, could lead to lower sales and reduced profitability. Diversifying markets and maintaining a flexible business model can help mitigate these risks.

Operational Risks: Operational risks include potential disruptions to the supply chain, equipment failures, and difficulties in managing complex projects. Any of these issues can lead to delays, increased costs, and damage to the company’s reputation. Robust risk management practices and contingency plans are essential for minimizing operational disruptions.

Financial Risks: Financial risks encompass factors such as currency exchange rate fluctuations, interest rate volatility, and credit risk. Unfavorable movements in exchange rates can reduce the value of international sales, while rising interest rates can increase borrowing costs. Prudent financial management and hedging strategies can help mitigate these risks.

Strategic Risks: Strategic risks involve decisions related to investments, acquisitions, and business development. Poorly executed acquisitions or unsuccessful expansion into new markets can lead to financial losses and a diversion of resources. Thorough due diligence and careful planning are necessary for making sound strategic decisions.

Graham Corporation's annual report on Form 10-K highlights specific risk factors that could affect future results. These include:

• Dependence on Key Customers: A significant portion of Graham Corporation’s revenue comes from a small number of key customers. The loss of one or more of these customers could have a material adverse effect on the company’s financial performance.
• Project Execution Risks: Graham Corporation’s business involves complex projects with long lead times. Delays, cost overruns, or other execution issues can negatively impact profitability.
• Warranty Claims: The company provides warranties on its products, and potential warranty claims could result in unexpected expenses.
• Cybersecurity Threats: Like all companies, Graham Corporation faces the risk of cybersecurity breaches that could compromise sensitive data and disrupt operations.

While specific mitigation strategies are not always detailed in public filings, Graham Corporation likely employs a range of measures to address these risks, such as:

• Diversifying its customer base to reduce reliance on key accounts.
• Implementing robust project management practices to control costs and timelines.
• Maintaining insurance coverage to protect against potential losses.
• Investing in cybersecurity measures to safeguard data and systems.

Understanding these risks is crucial for investors seeking to assess Graham Corporation’s financial health and future prospects. For more insights into Graham Corporation, consider reading: Exploring Graham Corporation (GHM) Investor Profile: Who’s Buying and Why?

Graham Corporation (GHM) Growth Opportunities

Graham Corporation (GHM) is strategically positioned for future growth, driven by several key factors. The company has successfully transformed its business from low-growth legacy segments to higher-growth areas like defense and space. As of fiscal year 2024, the defense and space segment contributed 61% of the company's revenue, a significant increase from 25% in fiscal year 2021.

Key growth drivers for Graham Corporation include:

• Product Innovations: Continuous innovation in fluid, power, heat transfer, and vacuum technologies.
• Market Expansions: Expansion into new geographic markets and industries, including space and new energy.
• Acquisitions: Strategic acquisitions like Barber Nichols and P3 Technologies have expanded capabilities and market reach.

Graham Corporation's management anticipates organic revenue growth of 9-10% annually. This projection is supported by a robust order book and continuous order flow from the defense segment. The company's revenue has grown from $97.5 million in fiscal year 2021 to $185.5 million in fiscal year 2024.

Here's a look at Graham Corporation's revenue growth in recent years:

Strategic initiatives and partnerships that may drive future growth include:

• New Facilities: Expansion of manufacturing capacity, particularly for naval defense projects. A new manufacturing facility in Batavia is on track for completion by June 2025.
• Leadership Transition: A strategic leadership transition plan is in place, with Matt Malone set to take over as CEO, ensuring continuity and strategic oversight.
• M&A Opportunities: Actively pursuing M&A opportunities targeting engineered products with strong IP and aftermarket potential.

Graham Corporation's competitive advantages include:

• Specialized Engineering Expertise: Advanced technological capabilities in vacuum and heat transfer engineering.
• Long-Standing Reputation: Over 55 years of continuous industrial manufacturing experience.
• Strong Market Presence: Presence in aerospace, defense, and energy market segments.
• High Switching Costs: Significant switching costs for customers in the defense segment due to financial and security considerations.

The company's long-term financial goals include achieving 8% to 10% average annualized organic revenue growth and developing low to mid-teen adjusted EBITDA margins by the end of fiscal year 2027. Management projects fiscal year 2027 revenue guidance to be $240-250 million with mid to high-teens gross margins.

For insights into Graham Corporation's values and mission, explore Mission Statement, Vision, & Core Values of Graham Corporation (GHM).