Yahoo Finance John Laing Group plc (LON:JLG): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like John Laing Group plc (LON:JLG), with a market cap of UK£1.42b. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into JLG here.
How much cash does JLG generate through its operations?
JLG’s debt levels surged from UK£161.40m to UK£173.20m over the last 12 months . With this increase in debt, JLG’s cash and short-term investments stands at UK£2.50m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of JLG’s operating efficiency ratios such as ROA here.
Can JLG pay its short-term liabilities?
With current liabilities at UK£191.90m, it appears that the company has not been able to meet these commitments with a current assets level of UK£10.10m, leading to a 0.053x current account ratio. which is under the appropriate industry ratio of 3x.
Does JLG face the risk of succumbing to its debt-load?
With debt at 15.41% of equity, JLG may be thought of as appropriately levered. This range is considered safe as JLG is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether JLG 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 JLG’s, case, the ratio of 13x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving JLG ample headroom to grow its debt facilities.
Next Steps:
Although JLG’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how JLG has been performing in the past. I recommend you continue to research John Laing Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for JLG’s future growth? Take a look at our free research report of analyst consensus for JLG’s outlook.
Valuation: What is JLG 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 JLG 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
