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Titan Pharmaceuticals, Inc. (NASDAQ:TTNP) is a small-cap stock with a market capitalization of US$17m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since TTNP is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into TTNP here.
Does TTNP Produce Much Cash Relative To Its Debt?
Over the past year, TTNP has ramped up its debt from US$3.4m to US$5.1m , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$5.9m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of TTNP’s operating efficiency ratios such as ROA here.
Can TTNP meet its short-term obligations with the cash in hand?
At the current liabilities level of US$4.8m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.12x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Pharmaceuticals companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does TTNP face the risk of succumbing to its debt-load?
Since total debt levels exceed equity, TTNP is a highly leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since TTNP is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
TTNP’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 TTNP has been performing in the past. You should continue to research Titan Pharmaceuticals to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TTNP’s future growth? Take a look at our free research report of analyst consensus for TTNP’s outlook.
- Historical Performance: What has TTNP's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.