Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as CVR Energy Inc (NYSE:CVI) with a market-capitalization of US$3.3b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine CVI’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into CVI here.
Does CVI produce enough cash relative to debt?
Over the past year, CVI has maintained its debt levels at around US$1.2b made up of current and long term debt. At this constant level of debt, CVI currently has US$534m remaining in cash and short-term investments , ready to deploy into the business. Moreover, CVI has produced cash from operations of US$154m in the last twelve months, leading to an operating cash to total debt ratio of 13%, meaning that CVI’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CVI’s case, it is able to generate 0.13x cash from its debt capital.
Does CVI’s liquid assets cover its short-term commitments?
With current liabilities at US$591m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.05x. Usually, for Oil and Gas companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does CVI face the risk of succumbing to its debt-load?
With debt reaching 69% of equity, CVI may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CVI’s case, the ratio of 2.8x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
CVI’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 proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for CVI’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research CVR Energy to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CVI’s future growth? Take a look at our free research report of analyst consensus for CVI’s outlook.
- Valuation: What is CVI 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 CVI 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 firstname.lastname@example.org.