How Financially Strong Is Television Broadcasts Limited (HKG:511)?
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Investors are always looking for growth in small-cap stocks like Television Broadcasts Limited (HKG:511), with a market cap of HK$6.5b. However, an important fact which most ignore is: how financially healthy is the business? Given that 511 is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, this is not a comprehensive overview, so I suggest you dig deeper yourself into 511 here.
511’s Debt (And Cash Flows)
511's debt levels have fallen from HK$3.8b to HK$3.0b over the last 12 months – this includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at HK$1.3b , ready to be used for running the business. On top of this, 511 has produced cash from operations of HK$131m in the last twelve months, resulting in an operating cash to total debt ratio of 4.3%, indicating that 511’s current level of operating cash is not high enough to cover debt.
Can 511 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$791m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 5.87x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.
Does 511 face the risk of succumbing to its debt-load?
With debt reaching 48% of equity, 511 may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since 511 is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
511’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. Since there is also no concerns around 511's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for 511's financial health. Other important fundamentals need to be considered alongside. You should continue to research Television Broadcasts to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for 511’s future growth? Take a look at our free research report of analyst consensus for 511’s outlook.
Valuation: What is 511 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 511 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.
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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.
