Yahoo Finance Is Touax SCA’s (EPA:TOUP) Balance Sheet A Threat To Its Future?
Touax SCA (EPA:TOUP) is a small-cap stock with a market capitalization of €69.78m. 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? Since TOUP is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I recommend you dig deeper yourself into TOUP here.
How does TOUP’s operating cash flow stack up against its debt?
Over the past year, TOUP has reduced its debt from €364.82m to €210.92m , which is made up of current and long term debt. With this debt repayment, the current cash and short-term investment levels stands at €29.86m , ready to deploy into the business. Moreover, TOUP has generated €31.09m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 14.74%, meaning that TOUP’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires a positive net income. In TOUP’s case, it is able to generate 0.15x cash from its debt capital.
Can TOUP meet its short-term obligations with the cash in hand?
With current liabilities at €133.64m, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.68x, which is below the prudent industry ratio of 3x.
Does TOUP face the risk of succumbing to its debt-load?
With total debt exceeding equities, TOUP is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since TOUP is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
TOUP’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, 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 TOUP has been performing in the past. You should continue to research Touax to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for TOUP’s future growth? Take a look at our free research report of analyst consensus for TOUP’s outlook.
Valuation: What is TOUP 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 TOUP 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 pass 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.
