What You Must Know About Tuesday Morning Corporation's (NASDAQ:TUES) Financial Strength
Tuesday Morning Corporation (NASDAQ:TUES) is a small-cap stock with a market capitalization of US$80m. 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? Companies operating in the Multiline Retail industry facing headwinds from current disruption, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into TUES here.
Does TUES produce enough cash relative to debt?
TUES has built up its total debt levels in the last twelve months, from US$43m to US$56m – this includes long-term debt. With this rise in debt, TUES currently has US$13m remaining in cash and short-term investments for investing into the business. Moreover, TUES has generated US$6.2m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 11%, meaning that TUES’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In TUES’s case, it is able to generate 0.11x cash from its debt capital.
Can TUES meet its short-term obligations with the cash in hand?
With current liabilities at US$180m, it appears that the company has been able to meet these commitments with a current assets level of US$313m, leading to a 1.74x current account ratio. Generally, for Multiline Retail companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is TUES’s debt level acceptable?
With debt at 32% of equity, TUES may be thought of as appropriately levered. This range is considered safe as TUES is not taking on too much debt obligation, which may be constraining for future growth. TUES's risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
TUES’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven't considered other factors such as how TUES has been performing in the past. I suggest you continue to research Tuesday Morning to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TUES’s future growth? Take a look at our free research report of analyst consensus for TUES’s outlook.
- Valuation: What is TUES 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 TUES 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.
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.