Yahoo Finance Is Skellerup Holdings Limited’s (NZE:SKL) Balance Sheet Strong Enough To Weather A Storm?
Skellerup Holdings Limited (NZSE:SKL) is a small-cap stock with a market capitalization of NZ$383.68M. 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? Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into SKL here.
Does SKL generate enough cash through operations?
SKL has built up its total debt levels in the last twelve months, from NZ$36.59M to NZ$41.92M , which is made up of current and long term debt. With this growth in debt, SKL’s cash and short-term investments stands at NZ$6.02M , ready to deploy into the business. Additionally, SKL has generated cash from operations of NZ$21.23M in the last twelve months, leading to an operating cash to total debt ratio of 50.65%, signalling that SKL’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 SKL’s case, it is able to generate 0.51x cash from its debt capital.
Can SKL pay its short-term liabilities?
With current liabilities at NZ$33.42M, the company has been able to meet these obligations given the level of current assets of NZ$94.48M, with a current ratio of 2.83x. For Machinery 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.
Is SKL’s debt level acceptable?
With a debt-to-equity ratio of 27.61%, SKL’s debt level may be seen as prudent. SKL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if SKL’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 SKL, the ratio of 24.59x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as SKL’s high interest coverage is seen as responsible and safe practice.
Next Steps:
SKL’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 exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for SKL’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Skellerup Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SKL’s future growth? Take a look at our free research report of analyst consensus for SKL’s outlook.
Valuation: What is SKL 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 SKL 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.
