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Is Beasley Broadcast Group, Inc.'s (NASDAQ:BBGI) Balance Sheet Strong Enough To Weather A Storm?

Simply Wall St

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Investors are always looking for growth in small-cap stocks like Beasley Broadcast Group, Inc. (NASDAQ:BBGI), with a market cap of US$92m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company's balance sheet strength. However, potential investors would need to take a closer look, and I recommend you dig deeper yourself into BBGI here.

Does BBGI Produce Much Cash Relative To Its Debt?

Over the past year, BBGI has ramped up its debt from US$212m to US$283m – this includes long-term debt. With this increase in debt, BBGI's cash and short-term investments stands at US$16m to keep the business going. On top of this, BBGI has generated cash from operations of US$27m during the same period of time, leading to an operating cash to total debt ratio of 9.5%, indicating that BBGI’s debt is not covered by operating cash.

Can BBGI pay its short-term liabilities?

With current liabilities at US$33m, it seems that the business has been able to meet these obligations given the level of current assets of US$67m, with a current ratio of 2.02x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Media companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

NasdaqGM:BBGI Historical Debt, July 3rd 2019

Is BBGI’s debt level acceptable?

With debt reaching 87% of equity, BBGI may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BBGI's case, the ratio of 2.21x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as BBGI’s low interest coverage already puts the company at higher risk of default.

Next Steps:

BBGI’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 BBGI's financial health. Other important fundamentals need to be considered alongside. You should continue to research Beasley Broadcast Group to get a better picture of the small-cap by looking at:

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.