What Investors Should Know About World Fuel Services Corporation’s (NYSE:INT) Financial Strength
Investors are always looking for growth in small-cap stocks like World Fuel Services Corporation (NYSE:INT), with a market cap of US$1.7b. 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, tend to be high risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into INT here.
How does INT’s operating cash flow stack up against its debt?
Over the past year, INT has reduced its debt from US$1.2b to US$742m – this includes long-term debt. With this debt repayment, INT currently has US$142m remaining in cash and short-term investments , ready to deploy into the business. Moreover, INT has produced cash from operations of US$80m over the same time period, resulting in an operating cash to total debt ratio of 11%, signalling that INT’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires a positive net income. In INT’s case, it is able to generate 0.11x cash from its debt capital.
Can INT meet its short-term obligations with the cash in hand?
Looking at INT’s US$3.3b in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.32x. Usually, for Oil and Gas companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can INT service its debt comfortably?
With debt reaching 42% of equity, INT may be thought of as relatively highly levered. 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 high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how INT has been performing in the past. You should continue to research World Fuel Services to get a more holistic view of the small-cap by looking at:
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.
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.
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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
