While small-cap stocks, such as Nuverra Environmental Solutions Inc (AMEX:NES) with its market cap of US$252.39M, 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, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into NES here.
Does NES generate enough cash through operations?
NES has shrunken its total debt levels in the last twelve months, from US$471.79M to US$39.05M – this includes both the current and long-term debt. With this debt repayment, NES’s cash and short-term investments stands at US$5.49M , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of NES’s operating efficiency ratios such as ROA here.
Can NES meet its short-term obligations with the cash in hand?
Looking at NES’s most recent US$28.39M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$53.42M, leading to a 1.88x current account ratio. For Energy Services companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does NES face the risk of succumbing to its debt-load?
NES’s level of debt is appropriate relative to its total equity, at 16.07%. This range is considered safe as NES is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Although NES’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure NES has company-specific issues impacting its capital structure decisions. I recommend you continue to research Nuverra Environmental Solutions to get a better picture of the stock by looking at:
- 1. Historical Performance: What has NES’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.
- 2. 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.