While small-cap stocks, such as Trinity Biotech plc (NASDAQ:TRIB) with its market cap of US$45m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Medical Equipment companies, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into TRIB here.
How does TRIB’s operating cash flow stack up against its debt?
TRIB’s debt levels have fallen from US$95m to US$82m over the last 12 months , which also accounts for long term debt. With this debt payback, TRIB’s cash and short-term investments stands at US$36m , ready to deploy into the business. Moreover, TRIB has produced US$7.1m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 8.6%, indicating that TRIB’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In TRIB’s case, it is able to generate 0.086x cash from its debt capital.
Does TRIB’s liquid assets cover its short-term commitments?
With current liabilities at US$21m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.48x. However, many consider a ratio above 3x to be high.
Does TRIB face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, TRIB is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since TRIB is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although TRIB’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for TRIB’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Trinity Biotech to get a better picture of the small-cap by looking at:
- Historical Performance: What has TRIB’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.
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 firstname.lastname@example.org.