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What Investors Should Know About Pandora Media Inc’s (P) Financial Strength

Jason Fuller

Pandora Media Inc (NYSE:P) is a small-cap stock with a market capitalization of USD $1.23B. 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. The significance of doing due diligence on a company’s financial strength stems from the fact that over 20,000 companies go bankrupt in every quarter in the US alone. Here are few basic financial health checks to judge whether a company fits the bill or there is an additional risk which you should consider before taking the plunge. View our latest analysis for Pandora Media

Does P generate an acceptable amount of cash through operations?

NYSE:P Historical Debt Nov 18th 17
NYSE:P Historical Debt Nov 18th 17

There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Can P pay off what it owes to its debtholder by using only cash from its operational activities? P’s recent operating cash flow was -0.83 times its debt within the past year. This means what P can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at P’s operations at this point in time.

Does P’s liquid assets cover its short-term commitments?

What about its other commitments such as payments to suppliers and salaries to its employees? As cash flow from operation is hindered by adverse events, P may need to liquidate its short-term assets to meet these upcoming payments. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that P does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.

Does P face the risk of succumbing to its debt-load?

While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. P’s debt-to-equity ratio stands at 40.95%, which means, while the company’s debt could pose a problem for its earnings stability, it is not at an alarmingly high level yet.

Next Steps:

Are you a shareholder? P’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. Given that P’s financial situation may change. I recommend keeping abreast of market expectations for P’s future growth on our free analysis platform.

Are you a potential investor? Although near-term liquidity isn’t an issue, P’s high debt levels along with poor cash coverage may not build the strongest investment case. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of P’s track record. As a following step, you should take a look at P’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.

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.