Lumber Liquidators Holdings, Inc. (NYSE:LL) is a small-cap stock with a market capitalization of US$290m. 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? Companies operating in the Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I recommend you dig deeper yourself into LL here.
How does LL’s operating cash flow stack up against its debt?
LL has built up its total debt levels in the last twelve months, from US$32m to US$43m , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at US$12m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 LL’s operating efficiency ratios such as ROA here.
Does LL’s liquid assets cover its short-term commitments?
Looking at LL’s US$178m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.89x. Generally, for Specialty Retail companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does LL face the risk of succumbing to its debt-load?
LL’s level of debt is appropriate relative to its total equity, at 21%. This range is considered safe as LL is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
LL’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. 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. You should continue to research Lumber Liquidators Holdings to get a more holistic view 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.