Yahoo Finance Is Tailored Brands Inc (NYSE:TLRD) A Financially Sound Company?
Investors are always looking for growth in small-cap stocks like Tailored Brands Inc (NYSE:TLRD), with a market cap of US$1.71B. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into TLRD here.
Does TLRD generate enough cash through operations?
Over the past year, TLRD has reduced its debt from US$1.60B to US$1.40B , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$103.61M for investing into the business. On top of this, TLRD has produced cash from operations of US$350.77M during the same period of time, leading to an operating cash to total debt ratio of 25.11%, indicating that TLRD’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In TLRD’s case, it is able to generate 0.25x cash from its debt capital.
Does TLRD’s liquid assets cover its short-term commitments?
At the current liabilities level of US$443.76M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$1.11B, leading to a 2.51x current account ratio. Usually, for Specialty Retail companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does TLRD face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, TLRD is a highly leveraged company. 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 TLRD 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 TLRD’s, case, the ratio of 2.51x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
TLRD’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. 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 TLRD has been performing in the past. You should continue to research Tailored Brands to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for TLRD’s future growth? Take a look at our free research report of analyst consensus for TLRD’s outlook.
Valuation: What is TLRD 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 TLRD 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.
