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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Golar LNG Limited (NASDAQ:GLNG) with a market-capitalization of US$2.0b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. GLNG’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into GLNG here.
Does GLNG Produce Much Cash Relative To Its Debt?
GLNG has built up its total debt levels in the last twelve months, from US$2.4b to US$2.6b , which includes long-term debt. With this rise in debt, GLNG's cash and short-term investments stands at US$218m , ready to be used for running the business. Additionally, GLNG has produced cash from operations of US$117m during the same period of time, resulting in an operating cash to total debt ratio of 4.5%, signalling that GLNG’s debt is not covered by operating cash.
Does GLNG’s liquid assets cover its short-term commitments?
At the current liabilities level of US$1.0b, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$650m, leading to a current ratio of 0.65x. The current ratio is the number you get when you divide current assets by current liabilities.
Is GLNG’s debt level acceptable?
With total debt exceeding equity, GLNG is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since GLNG is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although GLNG’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. This is only a rough assessment of financial health, and I'm sure GLNG has company-specific issues impacting its capital structure decisions. You should continue to research Golar LNG to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GLNG’s future growth? Take a look at our free research report of analyst consensus for GLNG’s outlook.
- Valuation: What is GLNG 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 GLNG is currently mispriced by the market.
- 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 firstname.lastname@example.org. 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.