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What You Must Know About Lakehouse plc’s (LON:LAKE) Financial Strength

Investors are always looking for growth in small-cap stocks like Lakehouse plc (LSE:LAKE), with a market cap of UK£68.78M. However, an important fact which most ignore is: how financially healthy is the business? Since LAKE is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into LAKE here.

Does LAKE generate an acceptable amount of cash through operations?

LAKE has built up its total debt levels in the last twelve months, from UK£21.04M to UK£27.40M , which is made up of current and long term debt. With this growth in debt, LAKE currently has UK£26.13M remaining in cash and short-term investments , ready to deploy into the business. Additionally, LAKE has generated cash from operations of UK£12.65M in the last twelve months, leading to an operating cash to total debt ratio of 46.15%, signalling that LAKE’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In LAKE’s case, it is able to generate 0.46x cash from its debt capital.

Can LAKE meet its short-term obligations with the cash in hand?

Looking at LAKE’s most recent UK£72.04M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of UK£96.57M, with a current ratio of 1.34x. Usually, for Commercial Services companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

LSE:LAKE Historical Debt Jun 19th 18
LSE:LAKE Historical Debt Jun 19th 18

Does LAKE face the risk of succumbing to its debt-load?

LAKE is a relatively highly levered company with a debt-to-equity of 54.54%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since LAKE is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

Although LAKE’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how LAKE has been performing in the past. I suggest you continue to research Lakehouse to get a better picture of the small-cap by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for LAKE’s future growth? Take a look at our free research report of analyst consensus for LAKE’s outlook.

  2. Valuation: What is LAKE 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 LAKE is currently mispriced by the market.

  3. 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.