Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as National Fuel Gas Company (NYSE:NFG), with a market cap of US$4.78b, often get neglected by retail investors. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. This article will examine NFG’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into NFG here.
How does NFG’s operating cash flow stack up against its debt?
Over the past year, NFG has maintained its debt levels at around US$2.09b – this includes both the current and long-term debt. At this current level of debt, NFG currently has US$313.31m remaining in cash and short-term investments for investing into the business. Additionally, NFG has produced US$650.66m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 31.20%, meaning that NFG’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In NFG’s case, it is able to generate 0.31x cash from its debt capital.
Can NFG meet its short-term obligations with the cash in hand?
Looking at NFG’s most recent US$661.46m liabilities, it appears that the company is not able to meet these obligations given the level of current assets of US$589.00m, with a current ratio of 0.89x below the prudent level of 3x.
Is NFG’s debt level acceptable?
NFG is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether NFG 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 NFG’s, case, the ratio of 4.54x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as NFG’s high interest coverage is seen as responsible and safe practice.
Although NFG’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. However, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how NFG has been performing in the past. I suggest you continue to research National Fuel Gas to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NFG’s future growth? Take a look at our free research report of analyst consensus for NFG’s outlook.
- Historical Performance: What has NFG’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 firstname.lastname@example.org.