Emerald Expositions Events, Inc. (NYSE:EEX) is a small-cap stock with a market capitalization of US$941m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since EEX is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is not a comprehensive overview, so I recommend you dig deeper yourself into EEX here.
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Does EEX Produce Much Cash Relative To Its Debt?
EEX has sustained its debt level by about US$574m over the last 12 months which accounts for long term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$11m , ready to be used for running the business. On top of this, EEX has generated US$95m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 17%, meaning that EEX’s debt is not covered by operating cash.
Can EEX pay its short-term liabilities?
Looking at EEX’s US$253m in current liabilities, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$116m, leading to a current ratio of 0.46x. The current ratio is the number you get when you divide current assets by current liabilities.
Is EEX’s debt level acceptable?
With debt reaching 78% of equity, EEX may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since EEX is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although EEX’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I'm sure EEX has company-specific issues impacting its capital structure decisions. I recommend you continue to research Emerald Expositions Events to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EEX’s future growth? Take a look at our free research report of analyst consensus for EEX’s outlook.
- Valuation: What is EEX 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 EEX 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.
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