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Has ENGlobal Corporation (ENG) Got Enough Cash To Cover Its Short-Term Obligations?

Grace Strickland

Zero-debt allows substantial financial flexibility, especially for small-cap companies like ENGlobal Corporation (NASDAQ:ENG), as the company does not have to adhere to strict debt covenants. However, it also faces higher cost of capital given interest cost is generally lower than equity. While ENG has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I recommend you look at the following hurdles to assess ENG’s financial health. View our latest analysis for ENGlobal

Is ENG right in choosing financial flexibility over lower cost of capital?

There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. But the downside of having debt in a company’s balance sheet is the debtholder’s higher claim on its assets in the case of liquidation, as well as stricter capital management requirements. The lack of debt on ENG’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if ENG is a high-growth company. Opposite to the high growth we were expecting, ENG’s negative revenue growth of -7.95% hardly justifies opting for zero-debt. If the decline sustains, it may find it hard to raise debt at an acceptable cost.

Does ENG’s liquid assets cover its short-term commitments?

What about its other commitments such as payments to suppliers and salaries to its employees? In times of adverse events, ENG may need to liquidate its short-term assets to pay these immediate obligations. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that ENG does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.

Next Steps:

Are you a shareholder? As ENG’s revenues are not growing at a fast enough pace, not taking advantage of lower cost debt may not be the best strategy. As an investor, you may want to figure out if there are company-specific reasons for not having any debt, and whether the company needs financial flexibility at this point in time. I suggest you take a look into a future growth analysis to account for what the market expects for the company moving forward.

Are you a potential investor? In terms of meeting is short term obligations, there’s nothing to worry about for ENG. But, a relatively low revenue growth could hurt returns, meaning there is some benefit to looking at low-cost funding alternatives. Keep in mind I haven’t considered other factors such as how ENG has been performing in the past. For your next step, you should take a look at ENG’s past performance to figure out ENG’s financial health position.


To help readers see pass 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.