While small-cap stocks, such as Team Tankers International Ltd (OB:TEAM) with its market cap of ØRE1.52B, 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 TEAM is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into TEAM here.
Does TEAM generate an acceptable amount of cash through operations?
Over the past year, TEAM has reduced its debt from US$149.45M to US$97.33M – this includes both the current and long-term debt. With this debt payback, TEAM currently has US$97.81M remaining in cash and short-term investments , ready to deploy into the business. Additionally, TEAM has produced cash from operations of US$31.81M during the same period of time, leading to an operating cash to total debt ratio of 32.68%, meaning that TEAM’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In TEAM’s case, it is able to generate 0.33x cash from its debt capital.
Can TEAM pay its short-term liabilities?
At the current liabilities level of US$44.45M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$135.98M, leading to a 3.06x current account ratio. Though, anything above 3x is considered high and could mean that TEAM has too much idle capital in low-earning investments.
Can TEAM service its debt comfortably?
TEAM’s level of debt is appropriate relative to its total equity, at 20.62%. This range is considered safe as TEAM is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for TEAM, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
TEAM’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure TEAM has company-specific issues impacting its capital structure decisions. I suggest you continue to research Team Tankers International to get a better picture of the stock by looking at: