While small-cap stocks, such as TiVo Corporation (NASDAQ:TIVO) with its market cap of US$1.1b, 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 TIVO is loss-making right now, it’s essential to understand 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. However, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into TIVO here.
TIVO’s Debt (And Cash Flows)
Over the past year, TIVO has maintained its debt levels at around US$995m including long-term debt. At this current level of debt, TIVO currently has US$321m remaining in cash and short-term investments to keep the business going. Additionally, TIVO has produced US$159m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 16%, signalling that TIVO’s current level of operating cash is not high enough to cover debt.
Can TIVO pay its short-term liabilities?
Looking at TIVO’s US$524m in current liabilities, it seems that the business may not be able to easily meet these obligations given the level of current assets of US$512m, with a current ratio of 0.98x. The current ratio is calculated by dividing current assets by current liabilities.
Can TIVO service its debt comfortably?
With debt reaching 67% of equity, TIVO may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since TIVO is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
TIVO’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. But, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for TIVO's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research TiVo to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TIVO’s future growth? Take a look at our free research report of analyst consensus for TIVO’s outlook.
- Valuation: What is TIVO 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 TIVO 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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