Yahoo Finance What Investors Should Know About Charter Communications Inc’s (NASDAQ:CHTR) Financial Strength
Investors pursuing a solid, dependable stock investment can often be led to Charter Communications Inc (NASDAQ:CHTR), a large-cap worth US$80.07B. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. But, its financial health remains the key to continued success. Let’s take a look at Charter Communications’s leverage and assess its financial strength 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 CHTR here. View our latest analysis for Charter Communications
Does CHTR produce enough cash relative to debt?
CHTR has built up its total debt levels in the last twelve months, from US$61.75B to US$70.23B , which is made up of current and long term debt. With this rise in debt, CHTR currently has US$621.00M remaining in cash and short-term investments for investing into the business. Additionally, CHTR has generated cash from operations of US$11.95B over the same time period, resulting in an operating cash to total debt ratio of 17.02%, signalling that CHTR’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CHTR’s case, it is able to generate 0.17x cash from its debt capital.
Can CHTR meet its short-term obligations with the cash in hand?
With current liabilities at US$11.09B, the company has not been able to meet these commitments with a current assets level of US$2.56B, leading to a 0.23x current account ratio. which is under the appropriate industry ratio of 3x.
Does CHTR face the risk of succumbing to its debt-load?
Considering Charter Communications’s total debt outweighs its equity, the company is deemed highly levered. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. We can put the sustainability of CHTR’s debt levels to the test by looking at how well interest payments are covered by earnings. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. In CHTR’s case, the ratio of 1.44x suggests that interest is not strongly covered. The sheer size of Charter Communications means it is unlikely to default or announce bankruptcy anytime soon. However, lenders may be more reluctant to lend out more funding as CHTR’s low interest coverage already puts the company in a risky position.
Next Steps:
CHTR’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 large-cap. Keep in mind I haven’t considered other factors such as how CHTR has been performing in the past. You should continue to research Charter Communications to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CHTR’s future growth? Take a look at our free research report of analyst consensus for CHTR’s outlook.
Valuation: What is CHTR 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 CHTR 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.
