What You Must Know About Trulieve Cannabis Corp’s (CNSX:TRUL) Financial Strength

While small-cap stocks, such as Trulieve Cannabis Corp (CNSX:TRUL) with its market cap of CA$155m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Pharmaceuticals industry, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into TRUL here.

How does TRUL’s operating cash flow stack up against its debt?

TRUL’s debt levels surged from US$5m to US$32m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, TRUL’s cash and short-term investments stands at US$9m for investing into the business. Moreover, TRUL has produced US$10m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 31%, meaning that TRUL’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In TRUL’s case, it is able to generate 0.31x cash from its debt capital.

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

Looking at TRUL’s most recent US$14m liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$34m, leading to a 2.38x current account ratio. Usually, for Pharmaceuticals companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

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Is TRUL’s debt level acceptable?

TRUL is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether TRUL is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In TRUL’s, case, the ratio of 17.26x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as TRUL’s high interest coverage is seen as responsible and safe practice.

Next Steps:

Although TRUL’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around TRUL’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how TRUL has been performing in the past. I suggest you continue to research Trulieve Cannabis to get a more holistic view of the small-cap 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. Historical Performance: What has TRUL’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.
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.

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 [email protected].