Yahoo Finance Is Laird PLC (LON:LRD) A Financially Sound Company?
While small-cap stocks, such as Laird PLC (LON:LRD) with its market cap of UK£975.35m, 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 Electronic industry, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into LRD here.
Does LRD produce enough cash relative to debt?
Over the past year, LRD has reduced its debt from UK£409.10m to UK£208.30m , which is made up of current and long term debt. With this reduction in debt, LRD’s cash and short-term investments stands at UK£51.30m for investing into the business. On top of this, LRD has produced cash from operations of UK£68.80m over the same time period, resulting in an operating cash to total debt ratio of 33.03%, indicating that LRD’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In LRD’s case, it is able to generate 0.33x cash from its debt capital.
Can LRD pay its short-term liabilities?
With current liabilities at UK£239.40m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.75x. Usually, for Electronic companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can LRD service its debt comfortably?
LRD’s level of debt is appropriate relative to its total equity, at 36.01%. This range is considered safe as LRD is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether LRD 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 LRD’s, case, the ratio of 7.94x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving LRD ample headroom to grow its debt facilities.
Next Steps:
LRD has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for LRD’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Laird to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for LRD’s future growth? Take a look at our free research report of analyst consensus for LRD’s outlook.
Valuation: What is LRD 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 LRD 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.
