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TheStreet Open House

SiriusXM Manages Its Money Worse Than a College Freshman

Stocks in this article: SIRIP

NEW YORK (TheStreet) -- SiriusXM (SIRI), the federal government and college freshmen have a lot in common.

On Tuesday, July 15, SiriusXM announced the addition of $2 billion to its stock repurchase program, increasing its total buyback program to a staggering $6 billion.

According to SiriusXM's board of directors, the program was extended to "return value to the stockholders and its confidence in the long-term growth prospects of the company's business."

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Is this a joke?

SiriusXM has been in extreme debt over a decade and nearly declared bankruptcy in 2009. Currently the company holds negative $2.2 billion dollars in net tangible assets. This means that SiriusXM has relatively insignificant tangible value compared to its motherload of debt.

Even more frightening, the company does not have enough current assets to keep up with its current liabilities. Out of its total $1.4 billion current assets, it has a paltry $121 million in cash; the majority is tied-up in receivables.

While $121 million in cash may seem substantial, when compared to its $2.8 billion in current liabilities, its cash balance is actually quite low. Imagine having a 4% cash balance compared to your own liabilities. It is akin to having $1,000 in the bank and $25,000 in credit card debt!

Although SiriusXM takes in more than $3 billion in annual revenue, its cost of goods sold and operating expenses eat up one-third of the revenue, while interest and taxes chew on the leftover revenue, leaving the company with less than 10% of its revenue as profit.

OK, so the company does come out with a bit of net income. What would a prudent company do in this situation? Pay off some more of that debt that eats into its revenue every quarter? Use it for revenue-generating activities?

Not SiriusXM.

Our college freshman instead believes that it is a better use of cash to buy back its own shares.

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