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Stocks with market capitalization between $2B and $10B, such as Zee Entertainment Enterprises Limited (NSEI:ZEEL) with a size of ₹564.46B, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine ZEEL’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into ZEEL here. See our latest analysis for Zee Entertainment Enterprises
Does ZEEL generate enough cash through operations?
Over the past year, ZEEL has ramped up its debt from ₹17.16B to ₹19.10B , which comprises of short- and long-term debt. With this rise in debt, ZEEL currently has ₹38.00B remaining in cash and short-term investments , ready to deploy into the business. Additionally, ZEEL has produced cash from operations of ₹6.69B over the same time period, leading to an operating cash to total debt ratio of 35.03%, meaning that ZEEL’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 ZEEL’s case, it is able to generate 0.35x cash from its debt capital.
Does ZEEL’s liquid assets cover its short-term commitments?
At the current liabilities level of ₹17.75B liabilities, the company has been able to meet these obligations given the level of current assets of ₹80.94B, with a current ratio of 4.56x. Though, anything above 3x is considered high and could mean that ZEEL has too much idle capital in low-earning investments.
Is ZEEL’s debt level acceptable?
With debt at 27.11% of equity, ZEEL may be thought of as appropriately levered. This range is considered safe as ZEEL is not taking on too much debt obligation, which may be constraining for future growth. We can test if ZEEL’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ZEEL, the ratio of 11326x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving ZEEL ample headroom to grow its debt facilities.