Yahoo Finance What You Need To Know About ZEAL Network SE’s (ETR:TIM) Cash Situation
ZEAL Network SE (ETR:TIM) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. Today we will examine TIM’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.
See our latest analysis for ZEAL Network
Is ZEAL Network generating enough cash?
ZEAL Network generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short.
The two ways to assess whether ZEAL Network’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
ZEAL Network’s yield of 50.37% last year indicates its ability to produce cash well-above the market index, given the size of the company. This means investors are adequately rewarded for the risk they take on by overweighting ZEAL Network.
Does ZEAL Network have a favourable cash flow trend?
Another important consideration is whether this return is likely to be maintained over the next couple of years. We can gauge this by looking at TIM’s expected operating cash flows. In the next couple of years, TIM is expected to deliver a decline in operating cash flow compared to the most recent level of €35m, which is not an encouraging sign. However, breaking down growth into a year on year basis, TIM ‘s negative growth rate improves each year, from -9.5% next year, to 8.2% in the following year.
Next Steps:
ZEAL Network sufficiently rewards its shareholders in terms of its cash yield, however, its declining operating cash flow is worrisome. This trend raises questions around the sustainability of the stock’s yields. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. You should continue to research ZEAL Network to get a better picture of the company by looking at:
Valuation: What is TIM 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 TIM is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on ZEAL Network’s board and the CEO’s back ground.
Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
