What does Phoenix New Media Limited's (NYSE:FENG) Balance Sheet Tell Us About Its Future?

Investors are always looking for growth in small-cap stocks like Phoenix New Media Limited (NYSE:FENG), with a market cap of US$298.77M. However, an important fact which most ignore is: how financially healthy is the business? Internet companies, even ones that are profitable, tend to be high risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into FENG here.

Does FENG generate an acceptable amount of cash through operations?

Over the past year, FENG has reduced its debt from CN¥358.60M to CN¥330.00M made up of predominantly near term debt. With this reduction in debt, the current cash and short-term investment levels stands at CN¥1.10B for investing into the business. Moreover, FENG has produced cash from operations of CN¥172.98M in the last twelve months, resulting in an operating cash to total debt ratio of 52.42%, signalling that FENG’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In FENG’s case, it is able to generate 0.52x cash from its debt capital.

Can FENG pay its short-term liabilities?

With current liabilities at CN¥1.07B, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.09x. For Internet companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Can FENG service its debt comfortably?

FENG’s level of debt is appropriate relative to its total equity, at 13.19%. FENG is not taking on too much debt commitment, which may be constraining for future growth.

Next Steps:

FENG has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven't considered other factors such as how FENG has been performing in the past. I recommend you continue to research Phoenix New Media to get a more holistic view of the stock by looking at:

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