U.S. Markets closed

Are Flotek Industries Inc’s (NYSE:FTK) Interest Costs Too High?

Chris Amalia

Flotek Industries Inc (NYSE:FTK) is a small-cap stock with a market capitalization of US$314.25M. 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? Given that FTK is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into FTK here.

How does FTK’s operating cash flow stack up against its debt?

FTK’s debt level has been constant at around US$48.40M over the previous year made up of current and long term debt. At this constant level of debt, FTK currently has US$4.82M remaining in cash and short-term investments for investing into the business. Additionally, FTK has produced US$2.07M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 4.27%, signalling that FTK’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires a positive net income. In FTK’s case, it is able to generate 0.043x cash from its debt capital.

Can FTK pay its short-term liabilities?

Looking at FTK’s most recent US$91.05M liabilities, the company has been able to meet these commitments with a current assets level of US$188.67M, leading to a 2.07x current account ratio. Usually, for Chemicals companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

NYSE:FTK Historical Debt Feb 20th 18

Is FTK’s debt level acceptable?

FTK’s level of debt is appropriate relative to its total equity, at 14.84%. FTK is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for FTK, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

FTK’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how FTK has been performing in the past. You should continue to research Flotek Industries to get a more holistic view of the stock by looking at:

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.