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While small-cap stocks, such as Skechers U.S.A., Inc. (NYSE:SKX) with its market cap of US$4.6b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Understanding the company's financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, potential investors would need to take a closer look, and I recommend you dig deeper yourself into SKX here.
SKX’s Debt (And Cash Flows)
SKX's debt levels surged from US$85m to US$1.2b over the last 12 months , which includes long-term debt. With this growth in debt, SKX currently has US$784m remaining in cash and short-term investments , ready to be used for running the business. Moreover, SKX has produced US$502m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 43%, indicating that SKX’s debt is appropriately covered by operating cash.
Does SKX’s liquid assets cover its short-term commitments?
Looking at SKX’s US$819m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$2.4b, with a current ratio of 2.91x. The current ratio is calculated by dividing current assets by current liabilities. For Luxury companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is SKX’s debt level acceptable?
SKX is a relatively highly levered company with a debt-to-equity of 52%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies.
Although SKX’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for SKX's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Skechers U.S.A to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SKX’s future growth? Take a look at our free research report of analyst consensus for SKX’s outlook.
- Valuation: What is SKX 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 SKX 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.