Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Liberty Latin America Ltd (NASDAQ:LILA), with a market cap of $3.40B, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. LILA’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into LILA here. View our latest analysis for LiLAC Group
Does LILA generate an acceptable amount of cash through operations?
Over the past year, LILA has ramped up its debt from $2,319.2M to $6,101.4M , which comprises of short- and long-term debt. With this increase in debt, LILA currently has $559.5M remaining in cash and short-term investments for investing into the business. Moreover, LILA has generated $468.2M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 7.67%, indicating that LILA’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 positive earnings. In LILA’s case, it is able to generate 0.08x cash from its debt capital.
Does LILA’s liquid assets cover its short-term commitments?
With current liabilities at $1,351.4M, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.12x. Generally, for Media companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is LILA’s debt level acceptable?
With total debt exceeding equities, LILA is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since LILA is presently 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.
LILA’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. I admit this is a fairly basic analysis for LILA’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research LiLAC Group to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for LILA’s future growth? Take a look at our free research report of analyst consensus for LILA’s outlook.
2. Valuation: What is LILA 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 LILA is currently mispriced by the market.
3. 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.