Yahoo Finance What does JJill Inc’s (NYSE:JILL) Balance Sheet Tell Us About Its Future?
JJill Inc (NYSE:JILL) is a small-cap stock with a market capitalization of US$405.68m. 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? Companies operating in the Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into JILL here.
How much cash does JILL generate through its operations?
Over the past year, JILL has reduced its debt from US$267.24m to US$241.68m , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at US$25.98m for investing into the business. Moreover, JILL has produced cash from operations of US$76.35m over the same time period, resulting in an operating cash to total debt ratio of 31.59%, indicating that JILL’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In JILL’s case, it is able to generate 0.32x cash from its debt capital.
Can JILL meet its short-term obligations with the cash in hand?
With current liabilities at US$105.52m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.26x. Usually, for Specialty Retail companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is JILL’s debt level acceptable?
JILL is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether JILL 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 JILL’s, case, the ratio of 3.69x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
JILL’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around JILL’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how JILL has been performing in the past. You should continue to research J.Jill to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for JILL’s future growth? Take a look at our free research report of analyst consensus for JILL’s outlook.
Valuation: What is JILL 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 JILL 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.
