Does TOR Minerals International Inc’s (TORM) Debt Level Pose A Serious Problem?
Investors are always looking for growth in small-cap stocks like TOR Minerals International Inc (NASDAQ:TORM), with a market cap of USD $20.10M. However, an important fact which most ignore is: how financially healthy is the company? Why is it important? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. Here are few basic financial health checks to judge whether a company fits the bill or there is an additional risk which you should consider before taking the plunge. View our latest analysis for TOR Minerals International
How does TORM’s operating cash flow stack up against its debt?
While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. Last year, TORM’s operating cash flow exceeded its debt obligations, which means TORM generates enough money in a year through its operations to pay off its near-term debt. Hence, debt poses a virtually insignificant risk for the company. This is great news for both debtholders and shareholders, as the company exhibits cautious cash and debt management.
Can TORM pay its short-term liabilities?
What about its commitments to other stakeholders such as payments to suppliers and employees? During times of unfavourable events, TORM could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for TORM’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that TORM does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Can TORM service its debt comfortably?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. For TORM, the debt-to-equity ratio is 12.18%, which means its risk of facing a debt-overhang is very low.
Next Steps:
Are you a shareholder? TORM’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Going forward, its financial position may change. I recommend keeping on top of market expectations for TORM’s future growth on our free analysis platform.
Are you a potential investor? TORM’s relatively safe debt levels is even more impressive due to its ability to generate high cash flow, which illustrates operating efficiency. Furthermore, its high liquidity means the company should continue to operate smoothly in the case of adverse events. To gain more confidence in the stock, you need to also analyse the company’s track record. I encourage you to continue your research by taking a look at TORM’s past performance analysis on our free platform to figure out TORM’s financial health position.
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.
