Investors are always looking for growth in small-cap stocks like Beasley Broadcast Group Inc (NASDAQ:BBGI), with a market cap of US$159m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I suggest you dig deeper yourself into BBGI here.
How much cash does BBGI generate through its operations?
Over the past year, BBGI has ramped up its debt from US$207m to US$244m – this includes long-term debt. With this growth in debt, BBGI currently has US$10.0m remaining in cash and short-term investments , ready to deploy into the business. Moreover, BBGI has generated US$26m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 11%, indicating 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 0.11x cash from its debt capital.
Can BBGI pay its short-term liabilities?
Looking at BBGI’s US$35m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$72m, with a current ratio of 2.07x. For Media companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does BBGI face the risk of succumbing to its debt-load?
With debt reaching 89% of equity, BBGI may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. 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 2.19x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
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. This is only a rough assessment of financial health, and I’m sure BBGI has company-specific issues impacting its capital structure decisions. I suggest you continue to research Beasley Broadcast Group to get a better picture of the small-cap by looking at:
- 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.
- 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.
- 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 past 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. For errors that warrant correction please contact the editor at email@example.com.