Is TiVo Corporation’s (NASDAQ:TIVO) Balance Sheet A Threat To Its Future?
While small-cap stocks, such as TiVo Corporation (NASDAQ:TIVO) with its market cap of US$1.66b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Software companies, in particular ones that run negative earnings, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into TIVO here.
How much cash does TIVO generate through its operations?
TIVO has sustained its debt level by about US$988.9m over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, TIVO currently has US$297.3m remaining in cash and short-term investments , ready to deploy into the business. On top of this, TIVO has produced US$168.8m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 17.1%, indicating that TIVO’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In TIVO’s case, it is able to generate 0.17x cash from its debt capital.
Can TIVO pay its short-term liabilities?
Looking at TIVO’s most recent US$151.8m liabilities, the company has been able to meet these obligations given the level of current assets of US$537.0m, with a current ratio of 3.54x. However, anything above 3x is considered high and could mean that TIVO has too much idle capital in low-earning investments.
Is TIVO’s debt level acceptable?
TIVO is a relatively highly levered company with a debt-to-equity of 54.2%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since TIVO is currently loss-making, 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.
Next Steps:
TIVO’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. This is only a rough assessment of financial health, and I’m sure TIVO has company-specific issues impacting its capital structure decisions. You should continue to research TiVo to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for TIVO’s future growth? Take a look at our free research report of analyst consensus for TIVO’s outlook.
Valuation: What is TIVO 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 TIVO 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
