Is EQT Corporation's (NYSE:EQT) Balance Sheet A Threat To Its Future?
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While small-cap stocks, such as EQT Corporation (NYSE:EQT) with its market cap of US$3.7b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since EQT is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, these checks don't give you a full picture, so I suggest you dig deeper yourself into EQT here.
EQT’s Debt (And Cash Flows)
Over the past year, EQT has reduced its debt from US$7.5b to US$5.1b – this includes long-term debt. With this debt repayment, EQT's cash and short-term investments stands at US$41m to keep the business going. Additionally, EQT has generated cash from operations of US$2.9b during the same period of time, leading to an operating cash to total debt ratio of 57%, signalling that EQT’s debt is appropriately covered by operating cash.
Can EQT pay its short-term liabilities?
At the current liabilities level of US$2.2b, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.63x. The current ratio is calculated by dividing current assets by current liabilities.
Can EQT service its debt comfortably?
EQT is a relatively highly levered company with a debt-to-equity of 45%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since EQT is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
Although EQT’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. But, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I'm sure EQT has company-specific issues impacting its capital structure decisions. I suggest you continue to research EQT to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for EQT’s future growth? Take a look at our free research report of analyst consensus for EQT’s outlook.
Valuation: What is EQT 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 EQT 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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.
