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Corus Entertainment Inc. (TSE:CJR.B) is a small-cap stock with a market capitalization of CA$1.4b. 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 CJR.B is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, these checks don't give you a full picture, so I recommend you dig deeper yourself into CJR.B here.
Does CJR.B Produce Much Cash Relative To Its Debt?
CJR.B's debt levels have fallen from CA$2.0b to CA$1.9b over the last 12 months , which includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at CA$68m to keep the business going. On top of this, CJR.B has produced CA$330m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 18%, indicating that CJR.B’s current level of operating cash is not high enough to cover debt.
Can CJR.B pay its short-term liabilities?
Looking at CJR.B’s CA$544m in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of CA$529m, with a current ratio of 0.97x. The current ratio is calculated by dividing current assets by current liabilities.
Is CJR.B’s debt level acceptable?
With total debt exceeding equity, CJR.B is considered a highly levered company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since CJR.B is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
CJR.B’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I'm sure CJR.B has company-specific issues impacting its capital structure decisions. I suggest you continue to research Corus Entertainment to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CJR.B’s future growth? Take a look at our free research report of analyst consensus for CJR.B’s outlook.
- Valuation: What is CJR.B 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 CJR.B 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 firstname.lastname@example.org. 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.