Yahoo Finance Is Lok’nStore Group plc’s (LON:LOK) Balance Sheet Strong Enough To Weather A Storm?
While small-cap stocks, such as Lok’nStore Group plc (LON:LOK) with its market cap of UK£124m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into LOK here.
How does LOK’s operating cash flow stack up against its debt?
LOK has built up its total debt levels in the last twelve months, from UK£29m to UK£37m , which includes long-term debt. With this rise in debt, LOK currently has UK£5.0m remaining in cash and short-term investments for investing into the business. Additionally, LOK has produced cash from operations of UK£6.2m over the same time period, resulting in an operating cash to total debt ratio of 17%, indicating that LOK’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In LOK’s case, it is able to generate 0.17x cash from its debt capital.
Does LOK’s liquid assets cover its short-term commitments?
Looking at LOK’s UK£5.8m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.68x. For Real Estate 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 LOK’s debt level acceptable?
With a debt-to-equity ratio of 36%, LOK’s debt level may be seen as prudent. LOK is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
LOK has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure LOK has company-specific issues impacting its capital structure decisions. I recommend you continue to research Lok’nStore Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for LOK’s future growth? Take a look at our free research report of analyst consensus for LOK’s outlook.
Valuation: What is LOK 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 LOK 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.
