Ballantyne Strong, Inc (NYSEMKT:BTN) is a small-cap stock with a market capitalization of US$25m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since BTN is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into BTN here.
How much cash does BTN generate through its operations?
Over the past year, BTN has ramped up its debt from US$2.4m to US$13m – this includes long-term debt. With this growth in debt, BTN’s cash and short-term investments stands at US$5.7m for investing 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of BTN’s operating efficiency ratios such as ROA here.
Can BTN pay its short-term liabilities?
With current liabilities at US$14m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.94x. Usually, for Entertainment companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does BTN face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 41%, BTN 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. But since BTN is presently loss-making, 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.
BTN’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for BTN’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Ballantyne Strong to get a more holistic view of the small-cap by looking at:
- Historical Performance: What has BTN’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.
- 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.
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