Yahoo Finance How Financially Strong Is Seven West Media Limited (ASX:SWM)?
While small-cap stocks, such as Seven West Media Limited (ASX:SWM) with its market cap of AU$1.25b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since SWM is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into SWM here.
How much cash does SWM generate through its operations?
Over the past year, SWM has maintained its debt levels at around AU$800.92m – this includes both the current and long-term debt. At this current level of debt, SWM currently has AU$69.49m remaining in cash and short-term investments , ready to deploy into the business. Moreover, SWM has generated AU$140.24m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 17.51%, signalling that SWM’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires a positive net income. In SWM’s case, it is able to generate 0.18x cash from its debt capital.
Can SWM meet its short-term obligations with the cash in hand?
With current liabilities at AU$400.77m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.35x. For Media companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can SWM service its debt comfortably?
With total debt exceeding equities, SWM is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since SWM is currently loss-making, 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:
At its current level of cash flow coverage, SWM has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure SWM has company-specific issues impacting its capital structure decisions. You should continue to research Seven West Media to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SWM’s future growth? Take a look at our free research report of analyst consensus for SWM’s outlook.
Valuation: What is SWM 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 SWM 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.
