While small-cap stocks, such as Dawson Geophysical Company (NASDAQ:DWSN) with its market cap of US$128.57M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Energy Services companies, especially ones that are currently loss-making, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is crucial. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into DWSN here.
Does DWSN generate enough cash through operations?
Over the past year, DWSN has reduced its debt from US$10.69M to US$2.36M – this includes both the current and long-term debt. With this reduction in debt, DWSN currently has US$54.87M remaining in cash and short-term investments , ready to deploy into the business. Additionally, DWSN has produced US$8.74M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 370.90%, signalling that DWSN’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In DWSN’s case, it is able to generate 3.71x cash from its debt capital.
Can DWSN pay its short-term liabilities?
At the current liabilities level of US$15.00M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$75.73M, leading to a 5.05x current account ratio. Though, a ratio greater than 3x may be considered as too high, as DWSN could be holding too much capital in a low-return investment environment.
Is DWSN’s debt level acceptable?
With a debt-to-equity ratio of 5.92%, DWSN’s debt level is relatively low. This range is considered safe as DWSN is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with DWSN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
DWSN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure DWSN has company-specific issues impacting its capital structure decisions. You should continue to research Dawson Geophysical to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for DWSN’s future growth? Take a look at our free research report of analyst consensus for DWSN’s outlook.
- 2. Historical Performance: What has DWSN’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.
- 3. 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 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.