Trulieve Cannabis Corp. (CNSX:TRUL): Time For A Financial Health Check

Investors are always looking for growth in small-cap stocks like Trulieve Cannabis Corp. (CNSX:TRUL), with a market cap of CA$1.8b. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. However, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into TRUL here.

Does TRUL Produce Much Cash Relative To Its Debt?

Over the past year, TRUL has ramped up its debt from US$14m to US$20m – this includes long-term debt. With this increase in debt, TRUL’s cash and short-term investments stands at US$42m to keep the business going. On top of this, TRUL has produced cash from operations of US$19m during the same period of time, resulting in an operating cash to total debt ratio of 95%, signalling that TRUL’s current level of operating cash is high enough to cover debt.

Can TRUL pay its short-term liabilities?

With current liabilities at US$23m, it appears that the company has been able to meet these commitments with a current assets level of US$86m, leading to a 3.72x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.

Can TRUL service its debt comfortably?

TRUL’s level of debt is appropriate relative to its total equity, at 22%. TRUL is not taking on too much debt commitment, which may be constraining for future growth. We can test if TRUL’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 TRUL, the ratio of 30.29x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

TRUL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how TRUL has been performing in the past. I recommend you continue to research Trulieve Cannabis to get a better picture of the stock by looking at:

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

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 [email protected]. 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.