World Wrestling Entertainment, Inc. (NYSE:WWE): Time For A Financial Health Check
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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as World Wrestling Entertainment, Inc. (NYSE:WWE), with a market capitalization of US$5.7b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. WWE’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into WWE here.
Check out our latest analysis for World Wrestling Entertainment
Does WWE Produce Much Cash Relative To Its Debt?
WWE's debt levels surged from US$214m to US$250m over the last 12 months , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$338m to keep the business going. On top of this, WWE has produced cash from operations of US$191m over the same time period, leading to an operating cash to total debt ratio of 76%, signalling that WWE’s debt is appropriately covered by operating cash.
Can WWE pay its short-term liabilities?
At the current liabilities level of US$345m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.28x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Entertainment companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Is WWE’s debt level acceptable?
With a debt-to-equity ratio of 80%, WWE can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether WWE is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In WWE's, case, the ratio of 6.85x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving WWE ample headroom to grow its debt facilities.
Next Steps:
Although WWE’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure WWE has company-specific issues impacting its capital structure decisions. You should continue to research World Wrestling Entertainment to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for WWE’s future growth? Take a look at our free research report of analyst consensus for WWE’s outlook.
Valuation: What is WWE 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 WWE 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
