Yahoo Finance What does Lumber Liquidators Holdings Inc’s (NYSE:LL) Balance Sheet Tell Us About Its Future?
Lumber Liquidators Holdings Inc (NYSE:LL) is a small-cap stock with a market capitalization of US$731.82m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Specialty Retail businesses operating in the environment facing headwinds from current disruption, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into LL here.
Does LL produce enough cash relative to debt?
LL’s debt levels have fallen from US$40.00m to US$15.00m over the last 12 months – this includes both the current and long-term debt. With this debt repayment, LL currently has US$19.94m remaining in cash and short-term investments , ready to deploy into the business. Additionally, LL has produced cash from operations of US$39.39m in the last twelve months, leading to an operating cash to total debt ratio of 262.61%, signalling that LL’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In LL’s case, it is able to generate 2.63x cash from its debt capital.
Does LL’s liquid assets cover its short-term commitments?
At the current liabilities level of US$178.16m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$298.00m, with a current ratio of 1.67x. Generally, for Specialty Retail companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does LL face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 13.24%, LL’s debt level may be seen as prudent. LL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. LL’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
LL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for LL’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Lumber Liquidators Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for LL’s future growth? Take a look at our free research report of analyst consensus for LL’s outlook.
Valuation: What is LL 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 LL 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.
