Investors are always looking for growth in small-cap stocks like Ascent Capital Group Inc (NASDAQ:ASCM.A), with a market cap of US$79.21M. However, an important fact which most ignore is: how financially healthy is the business? Since ASCM.A is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into ASCM.A here.
How does ASCM.A’s operating cash flow stack up against its debt?
ASCM.A’s debt level has been constant at around US$1.78B over the previous year – this includes both the current and long-term debt. At this current level of debt, ASCM.A’s cash and short-term investments stands at US$90.14M , ready to deploy into the business. Moreover, ASCM.A has produced cash from operations of US$188.90M during the same period of time, leading to an operating cash to total debt ratio of 10.60%, indicating that ASCM.A’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In ASCM.A’s case, it is able to generate 0.11x cash from its debt capital.
Can ASCM.A meet its short-term obligations with the cash in hand?
With current liabilities at US$95.12M, it appears that the company has been able to meet these commitments with a current assets level of US$125.03M, leading to a 1.31x current account ratio. Usually, for Consumer Services companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can ASCM.A service its debt comfortably?
With total debt exceeding equities, ASCM.A is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since ASCM.A is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
ASCM.A’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for ASCM.A’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Ascent Capital Group to get a better picture of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
- 1. Future Outlook: What are well-informed industry analysts predicting for ASCM.A’s future growth? Take a look at this free research report of analyst consensus for ASCM.A’s outlook.
- 2. Valuation: What is ASCM.A worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in this free research report helps visualize whether ASCM.A is currently mispriced by the market.
- 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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.