Is Tuesday Morning Corporation’s (NASDAQ:TUES) Balance Sheet Strong Enough To Weather A Storm?
Tuesday Morning Corporation (NASDAQ:TUES) is a small-cap stock with a market capitalization of US$140m. 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? Multiline Retail businesses operating in the environment facing headwinds from current disruption, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into TUES here.
Does TUES produce enough cash relative to debt?
TUES’s debt levels surged from US$31m to US$38m over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$10m , ready to deploy into the business. Additionally, TUES has generated US$27m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 71%, signalling that TUES’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In TUES’s case, it is able to generate 0.71x cash from its debt capital.
Can TUES pay its short-term liabilities?
At the current liabilities level of US$131m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.92x. Generally, for Multiline Retail companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is TUES’s debt level acceptable?
TUES’s level of debt is appropriate relative to its total equity, at 21%. This range is considered safe as TUES is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for TUES, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
TUES’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for TUES’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Tuesday Morning to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for TUES’s future growth? Take a look at our free research report of analyst consensus for TUES’s outlook.
Valuation: What is TUES 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 TUES 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.
