Yahoo Finance What does Tabcorp Holdings Limited’s (ASX:TAH) Balance Sheet Tell Us About Its Future?
Stocks with market capitalization between $2B and $10B, such as Tabcorp Holdings Limited (ASX:TAH) with a size of AU$9.18b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at TAH’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into TAH here. Check out our latest analysis for Tabcorp Holdings
How much cash does TAH generate through its operations?
Over the past year, TAH has ramped up its debt from AU$1.16b to AU$1.71b , which comprises of short- and long-term debt. With this increase in debt, TAH’s cash and short-term investments stands at AU$114.30m , ready to deploy into the business. On top of this, TAH has generated cash from operations of AU$222.50m over the same time period, resulting in an operating cash to total debt ratio of 13.01%, signalling that TAH’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In TAH’s case, it is able to generate 0.13x cash from its debt capital.
Does TAH’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$1.42b liabilities, the company is not able to meet these obligations given the level of current assets of AU$556.60m, with a current ratio of 0.39x below the prudent level of 3x.
Can TAH service its debt comfortably?
TAH is a relatively highly levered company with a debt-to-equity of 53.25%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since TAH is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
TAH’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven’t considered other factors such as how TAH has been performing in the past. You should continue to research Tabcorp Holdings to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for TAH’s future growth? Take a look at our free research report of analyst consensus for TAH’s outlook.
Valuation: What is TAH 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 TAH 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 pass 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.
