In a previous post, it was mentioned that Magna Entertainment's (Nasdaq: MECA) stock price was near a 52-week low, at 35 cents per share. It would seem at first glance that a gaming company that owns several horse racing and racino facilities couldn't be in such bad shape as to have its stock price fall 90% in a year.
To explore MECA's situation further, its recently filed SEC Form 10-K was reviewed for a few selected metrics dealing with liquidity, solvency and profitability for 2006 and 2007. The results are shown below.
With regard to liquidity, the three metrics evaluated were the current ratio, acid-test ratio and working capital.
Current Ratio: 2006/0.62 2007/0.58
Acid-Test Ratio: 2006/0.56 2007/0.54
Working Capital: 2006/($94.201M) 2007/($162.221M)
MECA's liquidity situation wasn't good in 2006 and got worse in 2007. At the end of 2007, MECA only had 58 cents of current assets to cover every dollar of current liability. Also, its working capital was over $162 million in the red. A healthy company wants current assets greater than current liabilities.
With regard to solvency, the three metrics evaluated were the solvency ratio, debt-equity ratio and the number of times interest earned ratio.
Solvency Ratio: 2006/1.47 2007/1.41
Debt-Equity Ratio: 2006/2.11 2007/2.42
NTIE Ratio: 2006/-0.50 2007/-1.18
It appears that MECA does in the aggregate have more assets than liabilities. The debt-equity ratio indicates that MECA is becoming more leveraged, with total liabilities almost 2.5 times that of the shareholders' equity. The NTIE ratio is also troubling, with the number not only negative, but becoming more so. A healthy company would have EBIT high enough so that earnings would cover interest expense. Not in this case as earnings are negative.
The final set of metrics deal with profitability, specifically EPS and cash and cash equivalents.
Earnings per share: 2006/($0.81) 2007/($1.04)
Cash and cash equivalents: 2006/$47.655M 2007/$34.315M
MECA is losing money and losing cash.
Overall, Magna Entertainment has issues with liquidity, solvency and profitability. Given the approximate 90% drop in share price over the last 12 months, these issues appear to be known by the street and have been factored in.
To explore MECA's situation further, its recently filed SEC Form 10-K was reviewed for a few selected metrics dealing with liquidity, solvency and profitability for 2006 and 2007. The results are shown below.
With regard to liquidity, the three metrics evaluated were the current ratio, acid-test ratio and working capital.
Current Ratio: 2006/0.62 2007/0.58
Acid-Test Ratio: 2006/0.56 2007/0.54
Working Capital: 2006/($94.201M) 2007/($162.221M)
MECA's liquidity situation wasn't good in 2006 and got worse in 2007. At the end of 2007, MECA only had 58 cents of current assets to cover every dollar of current liability. Also, its working capital was over $162 million in the red. A healthy company wants current assets greater than current liabilities.
With regard to solvency, the three metrics evaluated were the solvency ratio, debt-equity ratio and the number of times interest earned ratio.
Solvency Ratio: 2006/1.47 2007/1.41
Debt-Equity Ratio: 2006/2.11 2007/2.42
NTIE Ratio: 2006/-0.50 2007/-1.18
It appears that MECA does in the aggregate have more assets than liabilities. The debt-equity ratio indicates that MECA is becoming more leveraged, with total liabilities almost 2.5 times that of the shareholders' equity. The NTIE ratio is also troubling, with the number not only negative, but becoming more so. A healthy company would have EBIT high enough so that earnings would cover interest expense. Not in this case as earnings are negative.
The final set of metrics deal with profitability, specifically EPS and cash and cash equivalents.
Earnings per share: 2006/($0.81) 2007/($1.04)
Cash and cash equivalents: 2006/$47.655M 2007/$34.315M
MECA is losing money and losing cash.
Overall, Magna Entertainment has issues with liquidity, solvency and profitability. Given the approximate 90% drop in share price over the last 12 months, these issues appear to be known by the street and have been factored in.
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