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Is Ten Entertainment Group Plc’s (LSE:TEG) Balance Sheet A Threat To Its Future?

Hector Vargas

While small-cap stocks, such as Ten Entertainment Group Plc (LSE:TEG) with its market cap of GBP £141.46M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. 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. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. Check out our latest analysis for Ten Entertainment Group

Does TEG generate an acceptable amount of cash through operations?

LSE:TEG Historical Debt Nov 3rd 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. These catastrophes does not mean the company can stop servicing its debt obligations. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. In the case of TEG, operating cash flow turned out to be 0.9x its debt level over the past twelve months. This is a good sign, as over half of TEG’s near term debt can be covered by its day-to-day cash income, which reduces its riskiness to its debtholders.

Can TEG pay its short-term liabilities?

In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. In times of adverse events, TEG may need to liquidate its short-term assets to pay these immediate obligations. We test for TEG’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that TEG does not have enough liquid assets on hand to meet its upcoming liabilities. Though this is a common practice, since cash is better utilized invested in the business or returned to shareholders, it does raise some concerns for investors should adverse events arise.

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

Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. For TEG, the debt-to-equity ratio is 21.73%, which means its debt level does not pose a threat to its operations right now. We can test if TEG’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings should cover interest by at least three times, therefore reducing concerns when profit is highly volatile. TEG’s interest on debt is not strongly covered by earnings as it sits at around 2.82x. Lenders may be more reluctant to lend out more funding as TEG’s low interest coverage already puts the company at higher risk of default.

Next Steps:

Are you a shareholder? TEG’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. However, the company may struggle to meet its near term liabilities should an adverse event occur. Moving forward, its financial position may be different. You should always be keeping on top of market expectations for TEG’s future growth on our free analysis platform.

Are you a potential investor? Although TEG has sustained a reasonable level of debt and cash flow coverage , its lack of liquidity means the company may be pressed to meet its short-term obligations. You should continue your analysis by taking a look at TEG’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.