Newpark Resources Inc (NYSE:NR) is a small-cap stock with a market capitalization of US$905.6m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Energy Services companies, even ones that are profitable, are more likely to be higher risk. Assessing first and foremost the financial health is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into NR here.
How much cash does NR generate through its operations?
NR’s debt levels surged from US$161.0m to US$197.2m over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, NR currently has US$71.7m remaining in cash and short-term investments , ready to deploy into the business. Moreover, NR has generated cash from operations of US$36.8m over the same time period, leading to an operating cash to total debt ratio of 18.6%, signalling that NR’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In NR’s case, it is able to generate 0.19x cash from its debt capital.
Can NR meet its short-term obligations with the cash in hand?
Looking at NR’s most recent US$136.6m liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$533.9m, leading to a 3.91x current account ratio. Though, a ratio greater than 3x may be considered as too high, as NR could be holding too much capital in a low-return investment environment.
Does NR face the risk of succumbing to its debt-load?
NR’s level of debt is appropriate relative to its total equity, at 35.6%. NR is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether NR 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 NR’s, case, the ratio of 3.47x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving NR ample headroom to grow its debt facilities.
NR’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how NR has been performing in the past. I recommend you continue to research Newpark Resources to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NR’s future growth? Take a look at our free research report of analyst consensus for NR’s outlook.
- Valuation: What is NR 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 NR 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.
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.