Yahoo Finance Is TFI International Inc.’s (TSE:TFII) Balance Sheet A Threat To Its Future?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as TFI International Inc. (TSE:TFII), with a market capitalization of CA$3.3b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at TFII’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into TFII here.
View our latest analysis for TFI International
Does TFII produce enough cash relative to debt?
TFII has sustained its debt level by about CA$1.5b over the last 12 months including long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at CA$8.5m , ready to deploy into the business. On top of this, TFII has generated CA$486m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 33%, signalling that TFII’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In TFII’s case, it is able to generate 0.33x cash from its debt capital.
Does TFII’s liquid assets cover its short-term commitments?
Looking at TFII’s CA$654m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.05x. Generally, for Transportation companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can TFII service its debt comfortably?
TFII is a relatively highly levered company with a debt-to-equity of 96%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether TFII 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 TFII’s, case, the ratio of 7.39x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as TFII’s high interest coverage is seen as responsible and safe practice.
Next Steps:
TFII’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 TFII’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure TFII has company-specific issues impacting its capital structure decisions. You should continue to research TFI International to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for TFII’s future growth? Take a look at our free research report of analyst consensus for TFII’s outlook.
Valuation: What is TFII 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 TFII 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.
