While small-cap stocks, such as Tidewater Inc (NYSE:TDW) with its market cap of $777.90M, 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 energy services industry, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into TDW here.
How does TDW’s operating cash flow stack up against its debt?
Over the past year, TDW has maintained its debt levels at around $2,034.1M – this includes both the current and long-term debt. At this stable level of debt, TDW currently has $713.3M remaining in cash and short-term investments , ready to deploy into the business. Moreover, TDW has generated $29.8M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 0.01x, signalling that TDW’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires a positive net income. In TDW’s case, it is able to generate 0.01x cash from its debt capital.
Does TDW’s liquid assets cover its short-term commitments?
With current liabilities at $2,328.7M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of $1,141.3M, leading to a 0.49x current account ratio. which is under the appropriate industry ratio of 3x.
Is TDW’s level of debt at an acceptable level?
TDW is a relatively highly levered company with a debt-to-equity of 43.23%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since TDW is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
Are you a shareholder? At its current level of cash flow coverage, TDW has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may change. You should always be keeping abreast of market expectations for TDW’s future growth on our free analysis platform.