Yahoo Finance Are Tricon Capital Group Inc’s (TSE:TCN) Interest Costs Too High?
Investors are always looking for growth in small-cap stocks like Tricon Capital Group Inc (TSE:TCN), with a market cap of CA$1.41b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into TCN here.
How does TCN’s operating cash flow stack up against its debt?
Over the past year, TCN has ramped up its debt from CA$168.86m to CA$383.60m – this includes both the current and long-term debt. With this increase in debt, TCN’s cash and short-term investments stands at CA$14.81m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of TCN’s operating efficiency ratios such as ROA here.
Does TCN’s liquid assets cover its short-term commitments?
Looking at TCN’s most recent CA$65.91m liabilities, it seems that the business is not able to meet these obligations given the level of current assets of CA$29.63m, with a current ratio of 0.45x below the prudent level of 3x.
Is TCN’s debt level acceptable?
With a debt-to-equity ratio of 43.95%, TCN can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if TCN’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For TCN, the ratio of 5.29x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving TCN ample headroom to grow its debt facilities.
Next Steps:
At its current level of cash flow coverage, TCN has room for improvement to better cushion for events which may require debt repayment. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how TCN has been performing in the past. You should continue to research Tricon Capital Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for TCN’s future growth? Take a look at our free research report of analyst consensus for TCN’s outlook.
Valuation: What is TCN 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 TCN 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.
