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Tejon Ranch Co. (NYSE:TRC): Time For A Financial Health Check

Frank Brewer

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While small-cap stocks, such as Tejon Ranch Co. (NYSE:TRC) with its market cap of US$497m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into TRC here.

Does TRC produce enough cash relative to debt?

TRC’s debt levels have fallen from US$89m to US$67m over the last 12 months , which also accounts for long term debt. With this debt payback, TRC’s cash and short-term investments stands at US$80m for investing into the business. Moreover, TRC has produced cash from operations of US$11m in the last twelve months, resulting in an operating cash to total debt ratio of 16%, meaning that TRC’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In TRC’s case, it is able to generate 0.16x cash from its debt capital.

Can TRC meet its short-term obligations with the cash in hand?

At the current liabilities level of US$13m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 7.5x. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.

NYSE:TRC Historical Debt February 7th 19

Can TRC service its debt comfortably?

With a debt-to-equity ratio of 15%, TRC’s debt level may be seen as prudent. TRC is not taking on too much debt commitment, which may be constraining for future growth.

Next Steps:

TRC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for TRC’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Tejon Ranch to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for TRC’s future growth? Take a look at our free research report of analyst consensus for TRC’s outlook.
  2. Valuation: What is TRC 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 TRC is currently mispriced by the market.
  3. 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.