Yahoo Finance Is Brisbane Broncos Limited (ASX:BBL) A Financially Sound Company?
The direct benefit for Brisbane Broncos Limited (ASX:BBL), which sports a zero-debt capital structure, to include debt in its capital structure is the reduced cost of capital. However, the trade-off is BBL will have to adhere to stricter debt covenants and have less financial flexibility. While BBL has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
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Is BBL growing fast enough to value financial flexibility over lower cost of capital?
Debt funding can be cheaper than issuing new equity due to lower interest cost on debt. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. Either BBL does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital. BBL delivered a negative revenue growth of -0.6%. While its negative growth hardly justifies opting for zero-debt, if the decline sustains, it may find it hard to raise debt at an acceptable cost.
Can BBL pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Brisbane Broncos has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at AU$12m, it seems that the business has been able to meet these commitments with a current assets level of AU$17m, leading to a 1.39x current account ratio. 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.
Next Steps:
BBL is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. In the future, BBL’s financial situation may change. I admit this is a fairly basic analysis for BBL’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Brisbane Broncos to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BBL’s future growth? Take a look at our free research report of analyst consensus for BBL’s outlook.
Historical Performance: What has BBL’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
