How Financially Strong Is Reading International Inc (NASDAQ:RDI)?
Reading International Inc (NASDAQ:RDI) is a small-cap stock with a market capitalization of US$356m. 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? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into RDI here.
How does RDI’s operating cash flow stack up against its debt?
RDI’s debt levels surged from US$137m to US$164m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, RDI’s cash and short-term investments stands at US$13m , ready to deploy into the business. Additionally, RDI has produced US$31m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 19%, signalling that RDI’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 RDI’s case, it is able to generate 0.19x cash from its debt capital.
Can RDI pay its short-term liabilities?
Looking at RDI’s most recent US$67m liabilities, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$30m, leading to a current ratio of 0.46x.
Is RDI’s debt level acceptable?
With debt reaching 91% of equity, RDI 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. We can test if RDI’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For RDI, the ratio of 3.86x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
RDI’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 low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how RDI has been performing in the past. I recommend you continue to research Reading International to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for RDI’s future growth? Take a look at our free research report of analyst consensus for RDI’s outlook.
Historical Performance: What has RDI’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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 editorial-team@simplywallst.com.
