While small-cap stocks, such as Trinity Place Holdings Inc (AMEX:TPHS) with its market cap of US$192.80M, 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 TPHS is loss-making right now, it’s essential to understand 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. However, since I only look at basic financial figures, I recommend you dig deeper yourself into TPHS here.
Does TPHS generate enough cash through operations?
TPHS has built up its total debt levels in the last twelve months, from US$39.62M to US$48.71M – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$4.68M for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. 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 TPHS’s operating efficiency ratios such as ROA here.
Does TPHS’s liquid assets cover its short-term commitments?
Looking at TPHS’s most recent US$2.94M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$10.43M, with a current ratio of 3.55x. However, anything above 3x is considered high and could mean that TPHS has too much idle capital in low-earning investments.
Is TPHS’s debt level acceptable?
With debt reaching 75.05% of equity, TPHS may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since TPHS is presently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
TPHS’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure TPHS has company-specific issues impacting its capital structure decisions. I suggest you continue to research Trinity Place Holdings to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has TPHS’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.
- 2. 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 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.