Is Viad Corp (NYSE:VVI) A Financially Sound Company?
Viad Corp (NYSE:VVI) is a small-cap stock with a market capitalization of US$1.1b. 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? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into VVI here.
How much cash does VVI generate through its operations?
Over the past year, VVI has maintained its debt levels at around US$239m comprising of short- and long-term debt. At this constant level of debt, VVI currently has US$49m remaining in cash and short-term investments for investing into the business. Additionally, VVI has generated cash from operations of US$84m during the same period of time, resulting in an operating cash to total debt ratio of 35%, indicating that VVI’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In VVI’s case, it is able to generate 0.35x cash from its debt capital.
Does VVI’s liquid assets cover its short-term commitments?
With current liabilities at US$415m, it seems that the business may not be able to easily meet these obligations given the level of current assets of US$264m, with a current ratio of 0.64x.
Is VVI’s debt level acceptable?
With debt reaching 54% of equity, VVI may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if VVI’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For VVI, the ratio of 7.09x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as VVI’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although VVI’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure VVI has company-specific issues impacting its capital structure decisions. You should continue to research Viad to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for VVI’s future growth? Take a look at our free research report of analyst consensus for VVI’s outlook.
Valuation: What is VVI 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 VVI 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.
