Investors are always looking for growth in small-cap stocks like Liberty TripAdvisor Holdings Inc (NASDAQ:LTRP.A), with a market cap of US$1.11b. However, an important fact which most ignore is: how financially healthy is the business? Online Retail businesses operating in the environment facing headwinds from current disruption, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into LTRP.A here.
How much cash does LTRP.A generate through its operations?
LTRP.A’s debt levels have fallen from US$735.0m to US$480.0m over the last 12 months – this includes both the current and long-term debt. With this debt repayment, LTRP.A’s cash and short-term investments stands at US$685.0m for investing into the business. On top of this, LTRP.A has generated US$234.0m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 48.8%, signalling that LTRP.A’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In LTRP.A’s case, it is able to generate 0.49x cash from its debt capital.
Can LTRP.A meet its short-term obligations with the cash in hand?
Looking at LTRP.A’s most recent US$845.0m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$1.06b, with a current ratio of 1.25x. Usually, for Online Retail companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does LTRP.A face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 13.2%, LTRP.A’s debt level may be seen as prudent. This range is considered safe as LTRP.A is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with LTRP.A, and the company has plenty of headroom and ability to raise debt should it need to in the future.
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LTRP.A has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure LTRP.A has company-specific issues impacting its capital structure decisions. I suggest you continue to research Liberty TripAdvisor Holdings to get a better picture of the stock by looking at: