Is Technical Communications Corporation (TCCO) Consistently Positive?

October 22nd, 2012 Posted by Company Research Report No Comment yet

Technical Communications Corporation (TCCO) manufactures communication security devices that allow users to scramble transmitted information to ensure privacy. Its products are used to protect communication over radios, telephones, fiber optic cables, and satellite links.

In value investing, it is important to be knowledgeable in the financial aspects of the firm we are planning to invest in. When we talk of financials, we refer to balance sheet, income statement and cash flow statement of the company.

Balance Sheet


Several financial ratios measure the liquidity of the firm. Those ratios are the current ratio, the quick ratio or acid test and net working capital ratio. Working capital and liquidity ratios of TCCO from 2007 to 2011 are as follows:

  • Working capital in dollars was 4, 5, 6, 11 and 13, with an average of 7.8. This is the funds left after deducting short term obligations from the company’s current resources. As noticed here, there is a consistent increase per period for five years and positive results. ·
  • The company’s current ratio was 5, 6, 3, 5 and 14. Average of 6.5, which means that its current asset was 650 percent of its current liabilities. It shows that the company possessed vast current resources consecutively for five years of operation.
  • While quick ratio was 3, 4, 2, 4 and 11, with an average of 5, which means that current resources(net of inventory) were 500 percent of its short term obligations.
  •  And networking capital ratio was .80, .71, .67, .73 and .87. Average of .76, which means that the average net working capital left was 76 percent after paying off its current obligations.

Based on the above table, the company is financially stable as far as its current resources were concerned. Working capital was consistently positive and continued to increase year over year.  Its current ratio had an average of more than 500 percent as well as its quick ratio. After the settlement of its current obligations, the company ’s working capital left was 76 percent.


Asset management ratios are the key to analyzing how effectively and efficiency your small business is managing its assets to produce sales. Asset management ratios are also called turnover ratios or efficiency ratios.  I asked Rio how exactly this efficiency thing goes for TCCO and gladly she gave me first-hand results, come on let see.

  • Inventory turnover ratio was 1, 2, 1, 1 and 1, which shows that high turnover was in 2008 of two times while the rests were 1.
  • Receivable turnover ratio was 12, 0, 0, 7 and 0. As noticed, the company was not selling on credit, since its receivable transactions were recorded in 2007 and 2010 only.
  • Considering the company’s industry is in technology, its inventory was composed of communication equipment which is sellable to the same line of business only.  The company recorded minimal receivable in 2008 and 2011  with no payable. Most probably, the company sells its products on cash with order basis.


Leverage is a business term that refers to borrowing. If a business is “leveraged,” it means that the business has borrowed money to finance the purchase of assets. To calculate this, ratios such as debt ratio, debt to equity ratio and solvency ratio are needed. Then I remembered that this analysis was about Technical Communications Corporation. Do you know what I do next? Yes, you are right. I asked Rio again on what she found out after analyzing the company and she answered me this:

Technical Communications Corporation leverage results from 2007 to 2011 are as follows:

  • Debt ratio was .07, .2, .33, .14 and .20, with an average of .19 which means that in five years’ time its total obligation was 19 percent against total assets of the company. The company is operating its business mostly on a cash basis with the minimal loan.
  • Debt to equity ratio was .08, .25, .43, .17 and .25, with an average of .24. This tells us that its debt was only 24 percent of stockholder’s equity.
  • And solvency ratio was 2, 2.7, .33, 1 and 1. Average of 1.4. This tells us that TCCO is 140 percent solvent.

Majority in Control

  • Current liabilities to total asset was .07, .20, .33, .14 and .20. Average of .19. This tells us that the creditors, most probably suppliers have only 19 percent claims on the total assets of the company.
  • Owners’ equity to total asset was .87, .80, .78, .86 and .80. Average of .82. This means that the stockholders or owners had the majority control of the total assets of the company at a percentage of 82.

Referring to the above data, the company continued to be financially sound with minimal obligation and high solvency ratio, thus, giving us the idea that the company is well managed.

Property, Plant & Equipment

TCCO’s investment in property, plant, and equipment has an average of 3 in five years’ period. As noticed, the company is conservative in acquiring real properties.  After deducting its accumulated depreciation, it resulted in a zero net book value of the PPE.

Income Statement


  • Net margin of the company has an average of 20 percent and is quite good. This is simply the after-tax profit a company generated for each dollar of revenue. The rule of thumb is higher net profit is preferable.
  • Asset turnover ratio was 1, 1, .89, 1.47 and .80, with an average of 1.03. It means that  TCCO generates $1.03 average of sales for every $1 of assets.  As noticed, the asset turnover ratio tends to be inversely related to net profit margin or the higher the net profit margin, the lower the asset turnover.
  • Return on asset of TCCO was .20, .14, .11, .53 and .13 with an average of .22. This means that the company generated a profit of $0.22  for each $1 in the asset.
  • Return on equity was .25, .17, .14, .67 and .15. Average of .28. , which shows the firm’s earnings on the funds invested by the shareholders.
  • Financial leverage or equity multiplier was 1.25, 1.17, 1.29, 1.25 and 1.15 with an average of 1.22. This is derived by dividing total asset by total stockholders’ equity. It allows the investor to see what portion of the ROE is the result of debt.
  • Return on invested capital was .28 average which quantifies how well a company generates cash flow relative to the capital it has invested in its business.

The company’s net margin was good at an average of 20 percent. Its operating asset was efficiently used as the firm generated $1.03 average of sales for every dollar of asset and a  profit of $0.22. Return on equity was 28 percent average which means that the company earned $0.28 for every $1 of equity investment. And finally, the company’s return on invested capital has an average of 28 percent which shows its efficiency in generating cash flow relative to invested capital.


  • Revenue was 5, 7, 8, 22 and 12, with ttm of 9. The firm’s revenue was yearly increasing from 2008 to 2010 by 40, 14, and 175 percent but dropped in 2011 by 45 percent.
  • Gross profit was 3, 4, 5, 16 and 10, ttm of 7. This is the result after deducting the cost of revenue from revenue.
  • Operating income/income before tax was 1, 1, 0, 11 and 3. The difference of gross profit and the operating expense. TCCO’s operating income in 2008 was the same with 2007, breakeven in 2009, high in 2010 at $11 but dropped to $3 in 2011.
  • And finally, income after tax was 1, 1, 1, 8 and 2, the company has the same after-tax income in 2007 to 2009, it rose up in 2010 but went down in 2011.

TCCO’s past five years performance was impressive in the sense that its revenue showed a positive result, although not that high it was performing well in 2007 to 2010. However, it dropped in 2011 by 45 percent. After deducting the cost of revenue, operating expenses and provision for income tax,  the company managed to maintain a positive income of $1 in the first 3 years, increased to $8 in 2010 but dropped in 2011 to $2.  The same trend goes with its revenue.


  • The cost of revenue was 2, 3, 3, 5 and 2, with ttm of 2. This represents 40, 43, 38, 23 and 17 percent of revenue.
  • Selling, the general and administrative expense was 2, 2, 3, 3 and 3, with ttm of 3. This is also 40, 29, 38, 14 and 25 percent of revenue. Its high expense was in 2007 and 2009 in percentage.
  • Income tax was 3 and 1 in 2010 and 2011 respectively, which is 14 and 8 percent of revenue.

Considering the industry of Technical Communications Corporation, its cost of revenue was not so high and almost the same percentage with its operating expense.


Gross margin was .60, .57, .63, .73 and .83. Average of .67. The result fluctuated per year, wherein its highest was in 2011 at 83 percent.

Operating income and pretax margin was .20, .14, 0, 50 and 25. Average of .22.  It was break-even in 2009, high in 2010 at 50 percent, however, dropped by 25 percent in 2011.

Net margin was .20, .14, .13, .36 and .17. Average of .20. The company incurred low net margin in 2009 but high in 2010 at 36 percent, resulted in an average of 20 percent in 5 years period.

TCCO’s gross margin was high at above 50 percent throughout five years of operation with an average of 67 percent. After considering all the related operational costs plus provision for income tax, the company’s net margin was 20 percent average. This is quite good, the company is managed well.

Modified Income Statement

As per the above table, the company’s revenue incurred an up and down trend with high sales in 2010, but the rests were of the same level. After deducting the cost of revenue and operational costs, it resulted in a positive net income which its highest peak was in 2010.

Cash Flow

Cash flow statement is the third statement of the financial statements which shows the cash outflows and inflows of the company.

The graph below shows us how the cash flow of TCCO looks like:

Cash Flow from Operating Activities

Operating cash flows are cash received or expended as a result of the company’s internal business activities. It includes cash earnings plus changes to working capital.

Cash flow from operating activities of TCCO from 2007 to 2011 is as follows:

  • Net income was 1, 1, 1, 8 and 2, which is the result of the normal day to day operation of the business. It shows that its peak was in 2010.
  • Accounts receivable was -1 in 2011.
  • Inventory was also -1 in 2011.
  • While other working capital was 1, 1 and -2 from 2009 to 2011 respectively.
  • So, its net cash provided by operating activities was 1, 1, 2, 9 and -1, wherein 2009 was high so far but dropped to -1 in 2011.

As shown in the above table, operating cash flow was good in the first four years. Its highest peak was in 2010, additions made was in other working capital while deductions were adjustments on receivables and inventory which resulted in a negative balance of 1 in 2011.

Cash Flow from Investing Activities

There was no related transaction to investing activities for the past five years in this company.

Cash Flow from Financing Activities

Financing cash flows refer to cash received by Technical Communications Corporation from the issue of debt and equity or paid out as dividends, share repurchases or debt repayments.

  • Cash inflow was 1 due to common stock issued in 2010.
  • Cash outflow was -5 due to the dividend paid in 2010 of -4 and 2011 of -1.
  • Net cash provided by financing activities was -3 and -1 in 2010 and 2011 respectively. It has a negative result because cash out was greater than cash inflows. Transactions involved under this category, financing cash flow were limited to issuance of common stock and payment of dividends to shareholders in 2010 and 2011 only.

  Free Cash Flow

Shown below is the free cash flow of Technical Communications Corporation from 2007 to 2011:

Free cash flow was the net amount after deducting capital expenditure from operating cash flow. For the past five years, the company did not invest in a fixed asset; therefore, its free cash flow was the same with its operating cash flow of 1, 1, 2, 9 and -1 from 2007 to 2011 respectively.

Cash Flow Ratios

Cash flow ratios measure a company’s ability to meet ongoing financial and operational commitments.    To determine how efficient the cash flow of the firm used in the business operation, we need to used different ratios.

  • Operating CF to sales was .20, .14, .25, .41 and -.08. Average of .18, which means that the company generates an average of $0.18 of cash flow for every $1 dollar of sales.
  • Operating cash flow ratio and current coverage ratio was 1,1,67, 3 and -1. Average of .93. It is the result of dividing cash flow from operation by total current liabilities. This tells us how much cash flow can cover the short term obligation of the company.
  • Free cash flow ratio was 1, 1,1,1, and 1. Average of 1 which shows that the company has available funds to retire additional debt, additional dividends and invest another line of business.
  • Capital expenditure ratio was 0 because the company has no investment in real property during its five years of operation.
  • Total debt ratio was 1, 1, .67, 3 and -1. Average of .93 which means that TCCO has 93 percent ability to carry its total debt.  This ratio provides an indication of a company’s ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company’s ability to carry its total debt.

As shown above, the company is doing good in its operation, cash flow ratios show that TCCO has available funds to expand its business through the investment of other lines. In the same manner, it has also the ability to cover not only short term debt but long term debt as well.

Written by Rio

Edited by Cris

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