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Investors are always looking for growth in small-cap stocks like LiveXLive Media, Inc. (NASDAQ:LIVX), with a market cap of US$293m. However, an important fact which most ignore is: how financially healthy is the business? Given that LIVX is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I suggest you dig deeper yourself into LIVX here.
How much cash does LIVX generate through its operations?
Over the past year, LIVX has ramped up its debt from US$5.7m to US$14m , which accounts for long term debt. With this rise in debt, LIVX’s cash and short-term investments stands at US$14m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of LIVX’s operating efficiency ratios such as ROA here.
Can LIVX pay its short-term liabilities?
With current liabilities at US$32m, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.6x.
Does LIVX face the risk of succumbing to its debt-load?
With debt reaching 59% of equity, LIVX may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since LIVX is presently loss-making, 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:
Although LIVX’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how LIVX has been performing in the past. I recommend you continue to research LiveXLive Media to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LIVX’s future growth? Take a look at our free research report of analyst consensus for LIVX’s outlook.
- Historical Performance: What has LIVX’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.