Is JJill Inc. (NYSE:JILL) A Financially Sound Company?
While small-cap stocks, such as JJill Inc. (NYSE:JILL) with its market cap of US$262.99M, 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 Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into JILL here.
Does JILL generate an acceptable amount of cash through operations?
Over the past year, JILL has reduced its debt from US$267.24M to US$241.68M – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$25.98M for investing into the business. Moreover, JILL has produced cash from operations of US$76.35M during the same period of time, leading to an operating cash to total debt ratio of 31.59%, signalling that JILL’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In JILL’s case, it is able to generate 0.32x cash from its debt capital.
Can JILL meet its short-term obligations with the cash in hand?
At the current liabilities level of US$105.52M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$132.47M, with a current ratio of 1.26x. Usually, for Specialty Retail companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does JILL face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, JILL is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether JILL is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In JILL’s, case, the ratio of 3.7x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving JILL ample headroom to grow its debt facilities.
Next Steps:
JILL’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how JILL has been performing in the past. You should continue to research J.Jill to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for JILL’s future growth? Take a look at our free research report of analyst consensus for JILL’s outlook.
Valuation: What is JILL 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 JILL 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.
