Ballantyne Strong, Inc (NYSEMKT:BTN) is a small-cap stock with a market capitalization of US$19m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that BTN is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I recommend you dig deeper yourself into BTN here.
How does BTN’s operating cash flow stack up against its debt?
BTN has built up its total debt levels in the last twelve months, from US$2.4m to US$13m – this includes long-term debt. With this growth in debt, BTN currently has US$5.7m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of BTN’s operating efficiency ratios such as ROA here.
Does BTN’s liquid assets cover its short-term commitments?
Looking at BTN’s US$14m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$27m, leading to a 1.94x current account ratio. Usually, for Entertainment companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can BTN service its debt comfortably?
With debt reaching 41% of equity, BTN 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. However, since BTN is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although BTN’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how BTN has been performing in the past. You should continue to research Ballantyne Strong to get a better picture of the small-cap by looking at:
- Historical Performance: What has BTN'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 firstname.lastname@example.org.