While small-cap stocks, such as TimkenSteel Corporation (NYSE:TMST) with its market cap of US$657.2m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since TMST is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into TMST here.
How much cash does TMST generate through its operations?
Over the past year, TMST has ramped up its debt from US$168.4m to US$222.0m – this includes both the current and long-term debt. With this growth in debt, TMST’s cash and short-term investments stands at US$39.0m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 TMST’s operating efficiency ratios such as ROA here.
Can TMST meet its short-term obligations with the cash in hand?
With current liabilities at US$237.5m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.19x. Usually, for Metals and Mining companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can TMST service its debt comfortably?
With debt at 38.9% of equity, TMST may be thought of as appropriately levered. TMST is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with TMST, and the company has plenty of headroom and ability to raise debt should it need to in the future.
TMST’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for TMST’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research TimkenSteel to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TMST’s future growth? Take a look at our free research report of analyst consensus for TMST’s outlook.
- Valuation: What is TMST 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 TMST 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 email@example.com.