How Financially Strong Is Rogers Communications Inc (TSE:RCI.B)?

Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Rogers Communications Inc (TSX:RCI.B) a safer option. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. But, the key to their continued success lies in its financial health. Let’s take a look at Rogers Communications’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into RCI.B here. View our latest analysis for Rogers Communications

How does RCI.B’s operating cash flow stack up against its debt?

Over the past year, RCI.B has reduced its debt from CA$16.95B to CA$16.04B – this includes both the current and long-term debt. With this reduction in debt, RCI.B's cash and short-term investments stands at CA$0 , ready to deploy into the business. Additionally, RCI.B has produced CA$3.94B in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 24.55%, indicating that RCI.B’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In RCI.B’s case, it is able to generate 0.25x cash from its debt capital.

Can RCI.B pay its short-term liabilities?

Looking at RCI.B’s most recent CA$6.82B liabilities, it appears that the company is not able to meet these obligations given the level of current assets of CA$2.97B, with a current ratio of 0.44x below the prudent level of 3x.

Does RCI.B face the risk of succumbing to its debt-load?

Considering Rogers Communications’s total debt outweighs its equity, the company is deemed highly levered. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. We can test if RCI.B’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In RCI.B's case, the ratio of 4.38x suggests that interest is appropriately covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes RCI.B and other large-cap investments thought to be safe.

Next Steps:

RCI.B’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for RCI.B's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Rogers Communications to get a more holistic view of the stock by looking at:

• 1. Future Outlook: What are well-informed industry analysts predicting for RCI.B’s future growth? Take a look at our free research report of analyst consensus for RCI.B’s outlook.
• 2. Valuation: What is RCI.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 RCI.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.

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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.