While small-cap stocks, such as Beasley Broadcast Group Inc (NASDAQ:BBGI) with its market cap of US$324.55M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into BBGI here.
Does BBGI generate an acceptable amount of cash through operations?
BBGI’s debt levels have fallen from US$254.38M to US$214.78M over the last 12 months , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$13.92M , ready to deploy into the business. On top of this, BBGI has produced US$28.02M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 13.05%, meaning that BBGI’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BBGI’s case, it is able to generate 0.13x cash from its debt capital.
Can BBGI pay its short-term liabilities?
Looking at BBGI’s most recent US$28.96M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.92x. Usually, for Media companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can BBGI service its debt comfortably?
With a debt-to-equity ratio of 75.05%, BBGI can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 after interest and tax at least three times its net interest payments is considered financially sound. In BBGI’s case, the ratio of 1.87x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
BBGI’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 exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure BBGI has company-specific issues impacting its capital structure decisions. You should continue to research Beasley Broadcast Group to get a more holistic view of the stock by looking at:
- 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.
- Historical Performance: What has BBGI’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.
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.