Hovnanian Enterprises will release its earnings for its fiscal first quarter, ended Jan. 31, tomorrow after the market closes. Analysts estimate that the company will lose roughly $1.47 per share and post revenues of approximately $420.1 million.

Although the company has ample cash--it had $838.2 million in its corporate coffers at its October fiscal year-end--to survive such losses in the near term, the company is heading fast and furiously toward a zero equity situation. The home builder's stock value has eroded significantly in the past six months, falling to less than a dollar in the third week of February. This morning, its stock opened at $0.66 a share, up from Friday's close of $0.58 a share.

Analysts brought up this concern during its fiscal year-end earnings call in December, after the company logged $489.4 million in balance-sheet charges that ran the gamut from impairments to option write-offs, goodwill write-downs, "intangible impairments," joint-venture charges, and a non-cash deferred tax asset charge. All told, these charges grew the company's net debt-to-cap rate to 84%.

CEO Ara Hovnanian responded, "There's no question, with traditional balance-sheet metrics, that we are highly levered. And if the market continues to deteriorate, we'll be even more highly levered. The good part of our balance sheet is we have a lot of cash handy and not a lot of debt maturing. Over the many years before our maturities come due, the market will come back."

But even without the pressures of debt coming due, the company's future cash flow is in question. Many of Hovnanian's peers indicated that November and December were some of the worst months for home sales in recent history, suggesting that the company's cash flow could have turned negative in the quarter. Moreover, the company's projected $145 million in tax refunds aren't expected to show up on the balance sheet until February. However, those challenges aside, many builders also indicated that January was a marked improvement in terms of traffic and sales, which could offset any slowness the company experienced late in 2008.

But Moody's is hardly banking on any significant improvement in sales from the company's 56% drop-off in year-over-year sales from last quarter. Last Friday, Moody's cut Hovnanian's debt ratings, along with those on Beazer Homes USA, deep into speculative grade as concerns mounted over continued weak home sales into 2010. The company was downgraded one notch to "Caa1," seven levels below investment grade.

With the major focus on maximizing cash flow in the year, the company's margins are likely to suffer even more. As Wachovia Capital Markets analyst Carl Reichardt pointed out in a research note from December, last quarter, Hovnanian reported a negative pre-impairment gross margin, the only builder in Reichardt's coverage universe to do so.