Investors are always looking for growth in small-cap stocks like Zinc Media Group plc (AIM:ZIN), with a market cap of UK£9.18M. However, an important fact which most ignore is: how financially healthy is the business? Since ZIN is loss-making right now, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into ZIN here.
Does ZIN generate enough cash through operations?
ZIN has built up its total debt levels in the last twelve months, from UK£2.78M to UK£3.38M – this includes both the current and long-term debt. With this increase in debt, ZIN’s cash and short-term investments stands at UK£2.97M , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of ZIN’s operating efficiency ratios such as ROA here.
Can ZIN meet its short-term obligations with the cash in hand?
With current liabilities at UK£5.48M, it seems that the business has been able to meet these commitments with a current assets level of UK£6.41M, leading to a 1.17x current account ratio. For Media companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does ZIN face the risk of succumbing to its debt-load?
ZIN is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since ZIN is presently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
ZIN’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how ZIN has been performing in the past. I recommend you continue to research Zinc Media Group to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has ZIN’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.
- 2. 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.