Is Ever-Glory International Group Inc’s (NASDAQ:EVK) Balance Sheet Strong Enough To Weather A Storm?
While small-cap stocks, such as Ever-Glory International Group Inc (NASDAQ:EVK) with its market cap of US$55.48M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into EVK here.
Does EVK generate an acceptable amount of cash through operations?
EVK has built up its total debt levels in the last twelve months, from US$29.23M to US$37.73M . With this increase in debt, the current cash and short-term investment levels stands at US$62.88M for investing into the business. Moreover, EVK has produced US$14.92M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 39.55%, meaning that EVK’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In EVK’s case, it is able to generate 0.4x cash from its debt capital.
Can EVK pay its short-term liabilities?
With current liabilities at US$140.41M, it seems that the business has been able to meet these obligations given the level of current assets of US$213.11M, with a current ratio of 1.52x. For Luxury companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does EVK face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 36.74%, EVK’s debt level may be seen as prudent. EVK is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if EVK’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For EVK, the ratio of 38.01x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving EVK ample headroom to grow its debt facilities.
Next Steps:
EVK’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how EVK has been performing in the past. I recommend you continue to research Ever-Glory International Group to get a more holistic view of the stock by looking at:
Valuation: What is EVK 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 EVK is currently mispriced by the market.
Historical Performance: What has EVK’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
