Is Capital Senior Living Corporation’s (NYSE:CSU) Balance Sheet A Threat To Its Future?
Investors are always looking for growth in small-cap stocks like Capital Senior Living Corporation (NYSE:CSU), with a market cap of US$347.76m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Healthcare industry, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I recommend you dig deeper yourself into CSU here.
How does CSU’s operating cash flow stack up against its debt?
CSU’s debt levels surged from US$939.17m to US$1.01b over the last 12 months , which is made up of current and long term debt. With this increase in debt, CSU currently has US$17.65m remaining in cash and short-term investments , ready to deploy into the business. Additionally, CSU has produced cash from operations of US$55.59m during the same period of time, leading to an operating cash to total debt ratio of 5.51%, meaning that CSU’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In CSU’s case, it is able to generate 0.055x cash from its debt capital.
Can CSU pay its short-term liabilities?
With current liabilities at US$87.00m, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.74x, which is below the prudent industry ratio of 3x.
Is CSU’s debt level acceptable?
CSU is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since CSU is currently unprofitable, 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.
Next Steps:
CSU’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how CSU has been performing in the past. You should continue to research Capital Senior Living to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CSU’s future growth? Take a look at our free research report of analyst consensus for CSU’s outlook.
Valuation: What is CSU 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 CSU 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 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.
