U.S. Markets closed

Are Conn’s Inc’s (NASDAQ:CONN) Interest Costs Too High?

Rowena Monahan

Investors are always looking for growth in small-cap stocks like Conn’s Inc (NASDAQ:CONN), with a market cap of US$1.07B. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into CONN here.

Does CONN generate an acceptable amount of cash through operations?

Over the past year, CONN has reduced its debt from US$1.25B to US$1.15B , which is made up of current and long term debt. With this debt payback, CONN’s cash and short-term investments stands at US$23.57M for investing into the business. Additionally, CONN has produced US$205.13M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 17.91%, signalling that CONN’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CONN’s case, it is able to generate 0.18x cash from its debt capital.

Can CONN pay its short-term liabilities?

Looking at CONN’s most recent US$167.38M liabilities, the company has been able to meet these obligations given the level of current assets of US$1.09B, with a current ratio of 6.5x. Though, anything about 3x may be excessive, since CONN may be leaving too much capital in low-earning investments.

NasdaqGS:CONN Historical Debt Mar 30th 18

Can CONN service its debt comfortably?

With total debt exceeding equities, CONN is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.

Next Steps:

CONN’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure CONN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Conn’s to get a more holistic view of the stock by looking at:


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.