Investors pursuing a solid, dependable stock investment can often be led to Kinder Morgan, Inc. (NYSE:KMI), a large-cap worth US$45b. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, its financial health remains the key to continued success. Today we will look at Kinder Morgan’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into KMI here.
KMI’s Debt (And Cash Flows)
KMI's debt level has been constant at around US$37b over the previous year which accounts for long term debt. At this current level of debt, the current cash and short-term investment levels stands at US$3.3b to keep the business going. On top of this, KMI has generated cash from operations of US$5.0b during the same period of time, leading to an operating cash to total debt ratio of 13%, meaning that KMI’s debt is not covered by operating cash.
Can KMI pay its short-term liabilities?
Looking at KMI’s US$7.6b in current liabilities, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.76x. The current ratio is the number you get when you divide current assets by current liabilities.
Is KMI’s debt level acceptable?
Considering Kinder Morgan’s total debt outweighs its equity, the company is deemed highly levered. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. We can check to see whether KMI is able to meet its debt obligations by looking at the net interest coverage ratio. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. In KMI's case, the ratio of 2.03x suggests that interest is not strongly covered. Although it is highly unlikely we'd see Kinder Morgan defaulting or announcing bankruptcy tomorrow, this situation may put the company in a tough position when borrowing more money in the future to fuel its growth.
KMI’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. Keep in mind I haven't considered other factors such as how KMI has been performing in the past. I suggest you continue to research Kinder Morgan to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KMI’s future growth? Take a look at our free research report of analyst consensus for KMI’s outlook.
- Valuation: What is KMI 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 KMI 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.