Yahoo Finance Is ProSiebenSat1 Media SE’s (ETR:PSM) Balance Sheet A Threat To Its Future?
Mid-caps stocks, like ProSiebenSat1 Media SE (XTRA:PSM) with a market capitalization of €5.78B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at PSM’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into PSM here. Check out our latest analysis for ProSiebenSat.1 Media
How does PSM’s operating cash flow stack up against its debt?
PSM’s debt level has been constant at around €3.25B over the previous year – this includes both the current and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at €1.57B for investing into the business. On top of this, PSM has produced cash from operations of €1.62B during the same period of time, leading to an operating cash to total debt ratio of 49.88%, signalling that PSM’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In PSM’s case, it is able to generate 0.5x cash from its debt capital.
Can PSM meet its short-term obligations with the cash in hand?
Looking at PSM’s most recent €1.28B liabilities, the company has been able to meet these commitments with a current assets level of €2.45B, leading to a 1.91x current account ratio. For Media companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is PSM’s debt level acceptable?
PSM is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In PSM’s case, the ratio of 9.73x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving PSM ample headroom to grow its debt facilities.
Next Steps:
Although PSM’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around PSM’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for PSM’s financial health. Other important fundamentals need to be considered alongside. You should continue to research ProSiebenSat.1 Media to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for PSM’s future growth? Take a look at our free research report of analyst consensus for PSM’s outlook.
Valuation: What is PSM 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 PSM 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.
