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What You Must Know About Trio-Tech International’s (NYSEMKT:TRT) Financial Strength

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Investors are always looking for growth in small-cap stocks like Trio-Tech International (AMEX:TRT), with a market cap of US$16.70M. However, an important fact which most ignore is: how financially healthy is the business? Semiconductor companies, even ones that are profitable, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into TRT here.

How does TRT’s operating cash flow stack up against its debt?

TRT has sustained its debt level by about US$5.13M over the last 12 months – this includes both the current and long-term debt. At this current level of debt, TRT’s cash and short-term investments stands at US$5.56M for investing into the business. Moreover, TRT has generated cash from operations of US$3.95M over the same time period, leading to an operating cash to total debt ratio of 77.10%, meaning that TRT’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In TRT’s case, it is able to generate 0.77x cash from its debt capital.

Does TRT’s liquid assets cover its short-term commitments?

With current liabilities at US$9.55M, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.78x. Usually, for Semiconductor companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

AMEX:TRT Historical Debt May 25th 18
AMEX:TRT Historical Debt May 25th 18

Can TRT service its debt comfortably?

TRT’s level of debt is appropriate relative to its total equity, at 17.36%. This range is considered safe as TRT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether TRT is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In TRT’s, case, the ratio of 9.37x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving TRT ample headroom to grow its debt facilities.

Next Steps:

TRT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, 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 TRT’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Trio-Tech International to get a better picture of the stock by looking at:

  1. Historical Performance: What has TRT’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.