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Range Resources Corporation (NYSE:RRC) is a small-cap stock with a market capitalization of US$1.6b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since RRC is loss-making right now, it’s crucial to evaluate 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. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into RRC here.
RRC’s Debt (And Cash Flows)
RRC's debt levels have fallen from US$4.1b to US$3.8b over the last 12 months , which includes long-term debt. With this debt payback, RRC currently has US$488k remaining in cash and short-term investments , ready to be used for running the business. On top of this, RRC has produced cash from operations of US$881m over the same time period, resulting in an operating cash to total debt ratio of 23%, indicating that RRC’s current level of operating cash is high enough to cover debt.
Does RRC’s liquid assets cover its short-term commitments?
Looking at RRC’s US$671m in current liabilities, the company may not have an easy time meeting these commitments with a current assets level of US$388m, leading to a current ratio of 0.58x. The current ratio is the number you get when you divide current assets by current liabilities.
Does RRC face the risk of succumbing to its debt-load?
RRC is a relatively highly levered company with a debt-to-equity of 93%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since RRC is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although RRC’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. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I'm sure RRC has company-specific issues impacting its capital structure decisions. You should continue to research Range Resources to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RRC’s future growth? Take a look at our free research report of analyst consensus for RRC’s outlook.
- Valuation: What is RRC 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 RRC 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.