What does JinkoSolar Holding Co Ltd’s (NYSE:JKS) Balance Sheet Tell Us About Its Future?
While small-cap stocks, such as JinkoSolar Holding Co Ltd (NYSE:JKS) with its market cap of US$475.52m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Semiconductor industry, even ones that are profitable, tend to be high risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into JKS here.
How does JKS’s operating cash flow stack up against its debt?
JKS has built up its total debt levels in the last twelve months, from US$11.32b to US$0 , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$1.93b for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of JKS’s operating efficiency ratios such as ROA here.
Does JKS’s liquid assets cover its short-term commitments?
Looking at JKS’s most recent US$19.96b liabilities, it seems that the business has not been able to meet these commitments with a current assets level of US$19.61b, leading to a 0.98x current account ratio. which is under the appropriate industry ratio of 3x.
Can JKS service its debt comfortably?
JKS is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In JKS’s case, the ratio of 1.32x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as JKS’s low interest coverage already puts the company at higher risk of default.
Next Steps:
JKS’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 small-cap. I admit this is a fairly basic analysis for JKS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research JinkoSolar Holding to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for JKS’s future growth? Take a look at our free research report of analyst consensus for JKS’s outlook.
Valuation: What is JKS 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 JKS 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.
