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Is Titan Machinery Inc’s (NASDAQ:TITN) Balance Sheet A Threat To Its Future?

Kayla Ward

Investors are always looking for growth in small-cap stocks like Titan Machinery Inc (NASDAQ:TITN), with a market cap of US$351.12m. However, an important fact which most ignore is: how financially healthy is the business? Given that TITN is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into TITN here.

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

TITN’s debt level has been constant at around US$346.36m over the previous year – this includes both the current and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$53.40m , ready to deploy into the business. Moreover, TITN has produced US$95.81m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 27.66%, signalling that TITN’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires a positive net income. In TITN’s case, it is able to generate 0.28x cash from its debt capital.

Can TITN pay its short-term liabilities?

At the current liabilities level of US$328.29m liabilities, the company has been able to meet these obligations given the level of current assets of US$599.15m, with a current ratio of 1.83x. Generally, for Trade Distributors companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

NasdaqGS:TITN Historical Debt June 25th 18

Does TITN face the risk of succumbing to its debt-load?

Since total debt levels have outpaced equities, TITN is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since TITN is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

TITN’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around TITN’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure TITN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Titan Machinery to get a more holistic view of the small-cap by looking at:

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