With a market capitalization of US$11b, National Oilwell Varco, Inc. (NYSE:NOV) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Using the most recent data for NOV, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Does NOV Produce Much Cash Relative To Its Debt?
NOV has sustained its debt level by about US$2.7b over the last 12 months including long-term debt. At this constant level of debt, NOV currently has US$1.4b remaining in cash and short-term investments , ready to be used for running the business. Additionally, NOV has produced US$521m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 19%, indicating that NOV’s debt is not covered by operating cash.
Can NOV pay its short-term liabilities?
With current liabilities at US$2.3b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.11x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors.
Can NOV service its debt comfortably?
With a debt-to-equity ratio of 20%, NOV's debt level may be seen as prudent. NOV is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for NOV, and the company also has the ability and headroom to increase debt if needed going forward.
NOV’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 an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. This is only a rough assessment of financial health, and I'm sure NOV has company-specific issues impacting its capital structure decisions. I suggest you continue to research National Oilwell Varco to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NOV’s future growth? Take a look at our free research report of analyst consensus for NOV’s outlook.
- Valuation: What is NOV 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 NOV 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.
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