Yahoo Finance How Financially Strong Is Tinybeans Group Limited (ASX:TNY)?
Tinybeans Group Limited (ASX:TNY), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is TNY will have to follow strict debt obligations which will reduce its financial flexibility. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean TNY has outstanding financial strength. I recommend you look at the following hurdles to assess TNY’s financial health.
See our latest analysis for Tinybeans Group
Is TNY right in choosing financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. Though, the trade-offs are that lenders require stricter capital management requirements, in addition to having a higher claim on company assets relative to shareholders. The lack of debt on TNY’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if TNY is a high-growth company. TNY’s revenue growth over the past year is an impressively high double-digit 62%. Therefore, the company’s decision to choose financial flexibility is justified as it may need headroom to borrow in the future to sustain high growth.
Does TNY’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Tinybeans Group has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of AU$1m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of AU$5m, with a current ratio of 4.59x. Having said that, many consider anything above 3x to be quite high.
Next Steps:
As a high-growth company, it may be beneficial for TNY to have some financial flexibility, hence zero-debt. Since there is also no concerns around TNY’s liquidity needs, this may be its optimal capital structure for the time being. In the future, its financial position may change. Keep in mind I haven’t considered other factors such as how TNY has been performing in the past. I suggest you continue to research Tinybeans Group to get a better picture of the stock by looking at:
Historical Performance: What has TNY’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.
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.
