Is SeaWorld Entertainment Inc’s (NYSE:SEAS) Balance Sheet Strong Enough To Weather A Storm?
SeaWorld Entertainment Inc (NYSE:SEAS) is a small-cap stock with a market capitalization of US$1.67B. 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? Given that SEAS is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into SEAS here.
How does SEAS’s operating cash flow stack up against its debt?
SEAS has sustained its debt level by about US$1.55B over the last 12 months comprising of short- and long-term debt. At this stable level of debt, SEAS’s cash and short-term investments stands at US$33.18M , ready to deploy into the business. On top of this, SEAS has produced US$192.46M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 12.41%, meaning that SEAS’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In SEAS’s case, it is able to generate 0.12x cash from its debt capital.
Can SEAS pay its short-term liabilities?
At the current liabilities level of US$253.47M liabilities, the company has not been able to meet these commitments with a current assets level of US$118.78M, leading to a 0.47x current account ratio. which is under the appropriate industry ratio of 3x.
Can SEAS service its debt comfortably?
Since total debt levels have outpaced equities, SEAS 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. Though, since SEAS is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
SEAS’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 lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for SEAS’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research SeaWorld Entertainment to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SEAS’s future growth? Take a look at our free research report of analyst consensus for SEAS’s outlook.
Valuation: What is SEAS 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 SEAS is currently mispriced by the market.
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.
