While small-cap stocks, such as Zee Media Corporation Limited (NSEI:ZEEMEDIA) with its market cap of ₹19.77B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that ZEEMEDIA is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. 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 recommend you dig deeper yourself into ZEEMEDIA here.
Does ZEEMEDIA generate an acceptable amount of cash through operations?
Over the past year, ZEEMEDIA has ramped up its debt from ₹3,845.2M to ₹4,139.1M – this includes both the current and long-term debt. With this increase in debt, ZEEMEDIA’s cash and short-term investments stands at ₹617.3M for investing into the business. On top of this, ZEEMEDIA has generated cash from operations of ₹950.5M during the same period of time, leading to an operating cash to total debt ratio of 0.23x, signalling that ZEEMEDIA’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In ZEEMEDIA’s case, it is able to generate 0.23x cash from its debt capital.
Can ZEEMEDIA meet its short-term obligations with the cash in hand?
With current liabilities at ₹2,699.1M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.17x. Usually, for media companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is ZEEMEDIA’s level of debt at an acceptable level?
With a debt-to-equity ratio of 15.49%, ZEEMEDIA’s debt level may be seen as prudent. ZEEMEDIA is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. ZEEMEDIA’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? ZEEMEDIA has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But, as shareholders, you should try and determine whether this level of debt is justified for ZEEMEDIA, especially when liquidity may also be an issue. I recommend taking a look at ZEEMEDIA’s future growth analysis on our free platform. to account for the company’s position in further detail.