Yahoo Finance What does Conn’s Inc’s (NASDAQ:CONN) Balance Sheet Tell Us About Its Future?
Conn’s Inc (NASDAQ:CONN) is a small-cap stock with a market capitalization of US$1.13b. 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? Specialty Retail businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I recommend you dig deeper yourself into CONN here.
How does CONN’s operating cash flow stack up against its debt?
CONN has sustained its debt level by about US$1.09b over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, CONN currently has US$9.29m remaining in cash and short-term investments , ready to deploy into the business. On top of this, CONN has produced US$51.36m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 4.71%, indicating that CONN’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CONN’s case, it is able to generate 0.047x cash from its debt capital.
Can CONN meet its short-term obligations with the cash in hand?
At the current liabilities level of US$164.11m liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$1.08b, leading to a 6.58x current account ratio. Though, anything above 3x is considered high and could mean that CONN has too much idle capital in low-earning investments.
Is CONN’s debt level acceptable?
CONN is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
CONN’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure CONN has company-specific issues impacting its capital structure decisions. You should continue to research Conn’s to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CONN’s future growth? Take a look at our free research report of analyst consensus for CONN’s outlook.
Valuation: What is CONN 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 CONN is currently mispriced by the market.
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 pass 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.
