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While small-cap stocks, such as TravelCenters of America LLC (NASDAQ:TA) with its market cap of US$145m, 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 TA is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company’s balance sheet strength. However, this is not a comprehensive overview, so I recommend you dig deeper yourself into TA here.
Does TA Produce Much Cash Relative To Its Debt?
TA has built up its total debt levels in the last twelve months, from US$344m to US$2.3b , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$25m , ready to be used for running the business. Additionally, TA has produced US$92m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 3.9%, meaning that TA’s debt is not covered by operating cash.
Can TA pay its short-term liabilities?
Looking at TA’s US$429m in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$387m, with a current ratio of 0.9x. The current ratio is calculated by dividing current assets by current liabilities.
Does TA face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 61%, TA can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since TA is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
TA’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though 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 TA has been performing in the past. I recommend you continue to research TravelCenters of America to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TA’s future growth? Take a look at our free research report of analyst consensus for TA’s outlook.
- Historical Performance: What has TA’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.