Is Trulieve Cannabis Corp's (CNSX:TRUL) Balance Sheet Strong Enough To Weather A Storm?

Trulieve Cannabis Corp (CNSX:TRUL) is a small-cap stock with a market capitalization of CA$134m. 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? Pharmaceuticals companies, even ones that are profitable, are inclined towards being higher risk. So, understanding the company's financial health becomes crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into TRUL here.

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

TRUL has built up its total debt levels in the last twelve months, from US$14m to US$20m , which accounts for long term debt. With this growth in debt, TRUL currently has US$42m remaining in cash and short-term investments for investing into the business. Moreover, TRUL has generated US$19m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 95%, signalling that TRUL’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In TRUL’s case, it is able to generate 0.95x cash from its debt capital.

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

At the current liabilities level of US$23m, it appears that the company has been able to meet these commitments with a current assets level of US$86m, leading to a 3.72x current account ratio. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.

Can TRUL service its debt comfortably?

With debt at 22% of equity, TRUL may be thought of as appropriately levered. This range is considered safe as TRUL is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if TRUL’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For TRUL, the ratio of 30.29x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

TRUL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, 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 TRUL's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Trulieve Cannabis to get a better picture of the stock by looking at:

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

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.