Is Trackwise Designs Plc’s (LON:TWD) Balance Sheet Strong Enough To Weather A Storm?

Trackwise Designs Plc (LON:TWD) is a small-cap stock with a market capitalization of UK£15m. 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? Electronic companies, even ones that are profitable, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into TWD here.

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

TWD has built up its total debt levels in the last twelve months, from UK£836k to UK£1.6m , which includes long-term debt. With this rise in debt, TWD’s cash and short-term investments stands at UK£80k , ready to deploy into the business. Additionally, TWD has produced UK£236k in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 15%, indicating that TWD’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In TWD’s case, it is able to generate 0.15x cash from its debt capital.

Does TWD’s liquid assets cover its short-term commitments?

Looking at TWD’s UK£2.3m in current liabilities, the company may not be able to easily meet these obligations given the level of current assets of UK£1.5m, with a current ratio of 0.64x.

AIM:TWD Historical Debt December 4th 18
AIM:TWD Historical Debt December 4th 18

Can TWD service its debt comfortably?

TWD is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if TWD’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 TWD, the ratio of 1.35x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.

Next Steps:

Although TWD’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how TWD has been performing in the past. I suggest you continue to research Trackwise Designs to get a more holistic view of the stock by looking at:

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