In This Article:
If you are currently a shareholder in Entertainment Network (India) Limited (NSE:ENIL), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I will take you through ENIL’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing.
View our latest analysis for Entertainment Network (India)
What is free cash flow?
Free cash flow (FCF) is the amount of cash Entertainment Network (India) has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
The two ways to assess whether Entertainment Network (India)’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Entertainment Network (India)’s yield of 2.09% indicates its sub-standard capacity to generate cash, compared to the stock market index as a whole, accounting for the size differential. This means investors are taking on more concentrated risk on Entertainment Network (India) but are not being adequately rewarded for doing so.
Is Entertainment Network (India)’s yield sustainable?
Does ENIL’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow moving forward. In the next couple of years, the company is expected to grow its cash from operations at a double-digit rate of 41%, ramping up from its current levels of ₹1.1b to ₹1.5b in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, ENIL’s operating cash flow growth is expected to decline from a rate of 26% next year, to 12% in the following year. But the overall future outlook seems buoyant if ENIL can maintain its levels of capital expenditure as well.
Next Steps:
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Entertainment Network (India) relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I recommend you continue to research Entertainment Network (India) to get a more holistic view of the company by looking at: