What Investors Should Know About TransAtlantic Petroleum Ltd’s (NYSEMKT:TAT) Financial Strength
Investors are always looking for growth in small-cap stocks like TransAtlantic Petroleum Ltd (AMEX:TAT), with a market cap of US$76.58M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Oil and Gas industry, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into TAT here.
How does TAT’s operating cash flow stack up against its debt?
Over the past year, TAT has reduced its debt from US$41.94M to US$28.63M , which is made up of current and long term debt. With this debt payback, TAT’s cash and short-term investments stands at US$18.93M for investing into the business. On top of this, TAT has produced cash from operations of US$17.88M during the same period of time, leading to an operating cash to total debt ratio of 62.46%, signalling that TAT’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In TAT’s case, it is able to generate 0.62x cash from its debt capital.
Does TAT’s liquid assets cover its short-term commitments?
At the current liabilities level of US$35.85M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.36x. For Oil and Gas companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does TAT face the risk of succumbing to its debt-load?
With debt at 32.83% of equity, TAT may be thought of as appropriately levered. TAT is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for TAT, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
TAT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, 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 TAT has company-specific issues impacting its capital structure decisions. I suggest you continue to research TransAtlantic Petroleum to get a better picture of the stock by looking at:
Valuation: What is TAT 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 TAT is currently mispriced by the market.
Historical Performance: What has TAT’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.
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.
