Investors are always looking for growth in small-cap stocks like Corus Entertainment Inc. (TSE:CJR.B), with a market cap of CA$1.3b. However, an important fact which most ignore is: how financially healthy is the business? Given that CJR.B is not presently profitable, it’s crucial 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, these checks don’t give you a full picture, so I’d encourage you to dig deeper yourself into CJR.B here.
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CJR.B’s Debt (And Cash Flows)
Over the past year, CJR.B has reduced its debt from CA$2.0b to CA$1.9b – this includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at CA$68m , ready to be used for running the business. Additionally, CJR.B has generated CA$330m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 18%, meaning that CJR.B’s debt is not covered by operating cash.
Can CJR.B pay its short-term liabilities?
At the current liabilities level of CA$544m, the company may not have an easy time meeting these commitments with a current assets level of CA$529m, leading to a current ratio of 0.97x. The current ratio is the number you get when you divide current assets by current liabilities.
Can CJR.B service its debt comfortably?
Since total debt levels exceed equity, CJR.B is a highly leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since CJR.B is presently 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:
Although CJR.B’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. This is only a rough assessment of financial health, and I’m sure CJR.B has company-specific issues impacting its capital structure decisions. I suggest you continue to research Corus Entertainment to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CJR.B’s future growth? Take a look at our free research report of analyst consensus for CJR.B’s outlook.
- Valuation: What is CJR.B 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 CJR.B 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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