What Investors Should Know About Trican Well Service Ltd.’s (TSE:TCW) Financial Strength
Trican Well Service Ltd. (TSE:TCW) is a small-cap stock with a market capitalization of CA$322m. 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? Companies operating in the Energy Services industry, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. 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 suggest you dig deeper yourself into TCW here.
How does TCW’s operating cash flow stack up against its debt?
Over the past year, TCW has reduced its debt from CA$176m to CA$142m – this includes long-term debt. With this reduction in debt, TCW’s cash and short-term investments stands at CA$22m for investing into the business. Additionally, TCW has generated CA$156m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 110%, signalling that TCW’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In TCW’s case, it is able to generate 1.1x cash from its debt capital.
Does TCW’s liquid assets cover its short-term commitments?
At the current liabilities level of CA$128m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.47x. Generally, for Energy Services companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can TCW service its debt comfortably?
With debt at 14% of equity, TCW may be thought of as appropriately levered. This range is considered safe as TCW is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with TCW, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
TCW’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how TCW has been performing in the past. I recommend you continue to research Trican Well Service to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for TCW’s future growth? Take a look at our free research report of analyst consensus for TCW’s outlook.
Valuation: What is TCW 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 TCW 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 editorial-team@simplywallst.com.
