Are Lions Gate Entertainment Corp.'s (NYSE:LGF.A) Interest Costs Too High?
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Stocks with market capitalization between $2B and $10B, such as Lions Gate Entertainment Corp. (NYSE:LGF.A) with a size of US$2.5b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at LGF.A’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into LGF.A here.
See our latest analysis for Lions Gate Entertainment
Does LGF.A Produce Much Cash Relative To Its Debt?
LGF.A's debt levels surged from US$2.7b to US$3.0b over the last 12 months , which includes long-term debt. With this increase in debt, LGF.A's cash and short-term investments stands at US$184m to keep the business going. Moreover, LGF.A has produced cash from operations of US$428m in the last twelve months, leading to an operating cash to total debt ratio of 14%, meaning that LGF.A’s operating cash is less than its debt.
Can LGF.A pay its short-term liabilities?
With current liabilities at US$1.7b, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$1.4b, with a current ratio of 0.84x. The current ratio is calculated by dividing current assets by current liabilities.
Can LGF.A service its debt comfortably?
With debt reaching 100% of equity, LGF.A may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since LGF.A 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:
LGF.A’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. Though 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 LGF.A has been performing in the past. I suggest you continue to research Lions Gate Entertainment to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for LGF.A’s future growth? Take a look at our free research report of analyst consensus for LGF.A’s outlook.
Valuation: What is LGF.A 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 LGF.A 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 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.
