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While small-cap stocks, such as Lilis Energy, Inc. (NYSEMKT:LLEX) with its market cap of US$66m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that LLEX is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, this is just a partial view of the stock, and I suggest you dig deeper yourself into LLEX here.
Does LLEX Produce Much Cash Relative To Its Debt?
LLEX has shrunk its total debt levels in the last twelve months, from US$151m to US$111m – this includes long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$11m to keep the business going. Moreover, LLEX has generated cash from operations of US$86m over the same time period, resulting in an operating cash to total debt ratio of 77%, indicating that LLEX’s operating cash is sufficient to cover its debt.
Can LLEX meet its short-term obligations with the cash in hand?
Looking at LLEX’s US$78m in current liabilities, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$33m, leading to a current ratio of 0.42x. The current ratio is calculated by dividing current assets by current liabilities.
Does LLEX face the risk of succumbing to its debt-load?
With debt reaching 41% of equity, LLEX may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since LLEX is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although LLEX’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for LLEX's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Lilis Energy to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LLEX’s future growth? Take a look at our free research report of analyst consensus for LLEX’s outlook.
- Historical Performance: What has LLEX'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.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.