Yahoo Finance What Investors Should Know About AMC Entertainment Holdings Inc’s (NYSE:AMC) Financial Strength
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as AMC Entertainment Holdings Inc (NYSE:AMC), with a market cap of US$2.08b, often get neglected by retail investors. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. AMC’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into AMC here. Check out our latest analysis for AMC Entertainment Holdings
Does AMC produce enough cash relative to debt?
AMC’s debt levels surged from US$4.44b to US$4.89b over the last 12 months , which is made up of current and long term debt. With this increase in debt, AMC’s cash and short-term investments stands at US$310.00m , ready to deploy into the business. Additionally, AMC has produced cash from operations of US$558.70m over the same time period, resulting in an operating cash to total debt ratio of 11.43%, indicating that AMC’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In AMC’s case, it is able to generate 0.11x cash from its debt capital.
Can AMC meet its short-term obligations with the cash in hand?
At the current liabilities level of US$1.41b liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.62x, which is below the prudent industry ratio of 3x.
Is AMC’s debt level acceptable?
Since total debt levels have outpaced equities, AMC is a highly leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since AMC is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
AMC’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. This is only a rough assessment of financial health, and I’m sure AMC has company-specific issues impacting its capital structure decisions. You should continue to research AMC Entertainment Holdings to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AMC’s future growth? Take a look at our free research report of analyst consensus for AMC’s outlook.
Valuation: What is AMC 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 AMC 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.
