Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Imperial Oil Limited (TSX:IMO) a safer option. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, its financial health remains the key to continued success. Let’s take a look at Imperial Oil’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into IMO here. See our latest analysis for Imperial Oil
How much cash does IMO generate through its operations?
Over the past year, IMO has maintained its debt levels at around CA$5.23B – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at CA$1.20B for investing into the business. On top of this, IMO has generated cash from operations of CA$2.76B over the same time period, resulting in an operating cash to total debt ratio of 52.79%, meaning that IMO’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In IMO’s case, it is able to generate 0.53x cash from its debt capital.
Can IMO pay its short-term liabilities?
With current liabilities at CA$4.14B, it seems that the business has been able to meet these commitments with a current assets level of CA$5.41B, leading to a 1.31x current account ratio. Generally, for Oil and Gas companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can IMO service its debt comfortably?
With a debt-to-equity ratio of 21.42%, IMO’s debt level may be seen as prudent. IMO is not taking on too much debt commitment, which may be constraining for future growth.
IMO’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for IMO’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Imperial Oil to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IMO’s future growth? Take a look at our free research report of analyst consensus for IMO’s outlook.
- Valuation: What is IMO 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 IMO 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 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.