Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like TFI International Inc (TSX:TFII), with a market cap of CA$3.02B, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine TFII’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into TFII here. See our latest analysis for TFI International
Does TFII generate enough cash through operations?
TFII has shrunken its total debt levels in the last twelve months, from CA$1.59B to CA$1.51B – this includes both the current and long-term debt. With this reduction in debt, TFII currently has CA$4.52M remaining in cash and short-term investments , ready to deploy into the business. Additionally, TFII has produced cash from operations of CA$320.18M during the same period of time, leading to an operating cash to total debt ratio of 21.23%, indicating that TFII’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In TFII’s case, it is able to generate 0.21x cash from its debt capital.
Can TFII meet its short-term obligations with the cash in hand?
Looking at TFII’s most recent CA$535.75M liabilities, the company has been able to meet these obligations given the level of current assets of CA$652.41M, with a current ratio of 1.22x. Usually, for Transportation companies, this is a suitable ratio as there's enough of a cash buffer without holding too capital in low return investments.
Does TFII face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, TFII is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether TFII is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In TFII's, case, the ratio of 4.73x suggests that interest is appropriately 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.
TFII’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for TFII's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research TFI International to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TFII’s future growth? Take a look at our free research report of analyst consensus for TFII’s outlook.
- Valuation: What is TFII 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 TFII 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.
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.