How Financially Strong Is World Fuel Services Corporation (NYSE:INT)?
Investors are always looking for growth in small-cap stocks like World Fuel Services Corporation (NYSE:INT), with a market cap of US$1.60B. However, an important fact which most ignore is: how financially healthy is the business? Oil and Gas companies, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into INT here.
Does INT generate enough cash through operations?
Over the past year, INT has reduced its debt from US$1.19B to US$910.20M , which is made up of current and long term debt. With this debt repayment, INT’s cash and short-term investments stands at US$372.30M for investing into the business. On top of this, INT has generated US$205.20M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 22.54%, indicating that INT’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In INT’s case, it is able to generate 0.23x cash from its debt capital.
Does INT’s liquid assets cover its short-term commitments?
At the current liabilities level of US$2.72B liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$3.94B, with a current ratio of 1.45x. Generally, for Oil and Gas companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does INT face the risk of succumbing to its debt-load?
INT is a relatively highly levered company with a debt-to-equity of 52.37%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since INT is presently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
INT’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, 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 INT has company-specific issues impacting its capital structure decisions. I recommend you continue to research World Fuel Services to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for INT’s future growth? Take a look at our free research report of analyst consensus for INT’s outlook.
2. Valuation: What is INT 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 INT is currently mispriced by the market.
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.
