Is Live Ventures Incorporated (NASDAQ:LIVE) A Financially Sound Company?
Investors are always looking for growth in small-cap stocks like Live Ventures Incorporated (NASDAQ:LIVE), with a market cap of US$25.42M. However, an important fact which most ignore is: how financially healthy is the business? Consumer Durables businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into LIVE here.
Does LIVE generate an acceptable amount of cash through operations?
LIVE has built up its total debt levels in the last twelve months, from US$17.47M to US$78.82M , which comprises of short- and long-term debt. With this growth in debt, LIVE’s cash and short-term investments stands at US$3.97M for investing into the business. Additionally, LIVE has generated US$7.87M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 9.99%, indicating that LIVE’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 LIVE’s case, it is able to generate 0.1x cash from its debt capital.
Can LIVE meet its short-term obligations with the cash in hand?
At the current liabilities level of US$66.44M liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.84x, which is below the prudent industry ratio of 3x.
Is LIVE’s debt level acceptable?
Since total debt levels have outpaced equities, LIVE is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether LIVE is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In LIVE’s, case, the ratio of 2.13x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
LIVE’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure LIVE has company-specific issues impacting its capital structure decisions. I suggest you continue to research Live Ventures to get a more holistic view of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
1. Historical Performance: What has LIVE’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 LIVE’s historicals for more clarity.
2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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.
