Investors are always looking for growth in small-cap stocks like Tejon Ranch Co (NYSE:TRC), with a market cap of US$600.91M. However, an important fact which most ignore is: how financially healthy is the business? Given that TRC is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into TRC here.

Does TRC generate enough cash through operations?

TRC’s debt levels have fallen from US$83.27M to US$70.71M over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, TRC’s cash and short-term investments stands at US$90.98M , ready to deploy into the business. On top of this, TRC has produced US$9.83M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 13.90%, meaning that TRC’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In TRC’s case, it is able to generate 0.14x cash from its debt capital.

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

At the current liabilities level of US$10.48M liabilities, the company has been able to meet these obligations given the level of current assets of US$103.90M, with a current ratio of 9.92x. Though, anything about 3x may be excessive, since TRC may be leaving too much capital in low-earning investments.

Is TRC’s debt level acceptable?

With debt at 16.57% of equity, TRC may be thought of as appropriately levered. TRC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with TRC, and the company has plenty of headroom and ability to raise debt should it need to in the future.

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TRC’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for TRC’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Tejon Ranch to get a better picture of the stock by looking at: