Does OGE Energy Corp’s (NYSE:OGE) Debt Level Pose A Problem?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as OGE Energy Corp (NYSE:OGE), with a market capitalization of US$7.26b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at OGE’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into OGE here.
See our latest analysis for OGE Energy
How does OGE’s operating cash flow stack up against its debt?
OGE’s debt level has been constant at around US$3.19b over the previous year made up of current and long term debt. At this constant level of debt, OGE currently has US$2.30m remaining in cash and short-term investments , ready to deploy into the business. Moreover, OGE has generated US$860.50m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 26.94%, indicating that OGE’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In OGE’s case, it is able to generate 0.27x cash from its debt capital.
Can OGE pay its short-term liabilities?
At the current liabilities level of US$1.22b liabilities, it seems that the business is not able to meet these obligations given the level of current assets of US$493.50m, with a current ratio of 0.41x below the prudent level of 3x.
Does OGE face the risk of succumbing to its debt-load?
OGE is a relatively highly levered company with a debt-to-equity of 83.12%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In OGE’s case, the ratio of 3.19x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as OGE’s high interest coverage is seen as responsible and safe practice.
Next Steps:
OGE’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven’t considered other factors such as how OGE has been performing in the past. I recommend you continue to research OGE Energy to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for OGE’s future growth? Take a look at our free research report of analyst consensus for OGE’s outlook.
Historical Performance: What has OGE’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 editorial-team@simplywallst.com.
