Is Shaw Communications Inc's (TSE:SJR.B) Balance Sheet A Threat To Its Future?

Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Shaw Communications Inc (TSE:SJR.B) with a market-capitalization of CA$12.95b, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at SJR.B’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into SJR.B here.

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How much cash does SJR.B generate through its operations?

Over the past year, SJR.B has reduced its debt from CA$5.57b to CA$4.31b , which comprises of short- and long-term debt. With this debt payback, SJR.B's cash and short-term investments stands at CA$294.0m , ready to deploy into the business. On top of this, SJR.B has generated cash from operations of CA$1.27b over the same time period, leading to an operating cash to total debt ratio of 29.5%, indicating that SJR.B’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SJR.B’s case, it is able to generate 0.3x cash from its debt capital.

Can SJR.B pay its short-term liabilities?

With current liabilities at CA$1.42b, it appears that the company has not been able to meet these commitments with a current assets level of CA$918.0m, leading to a 0.65x current account ratio. which is under the appropriate industry ratio of 3x.

Can SJR.B service its debt comfortably?

With a debt-to-equity ratio of 74.0%, SJR.B can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In SJR.B's case, the ratio of 4.14x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as SJR.B’s high interest coverage is seen as responsible and safe practice.

Next Steps:

Although SJR.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. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. This is only a rough assessment of financial health, and I'm sure SJR.B has company-specific issues impacting its capital structure decisions. I recommend you continue to research Shaw Communications to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for SJR.B’s future growth? Take a look at our free research report of analyst consensus for SJR.B’s outlook.
2. Valuation: What is SJR.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 SJR.B is currently mispriced by the market.
3. 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.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.