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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as National Oilwell Varco, Inc. (NYSE:NOV), with a market cap of US$8.0b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine NOV’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 NOV here.
NOV’s Debt (And Cash Flows)
NOV's debt levels surged from US$2.7b to US$3.3b over the last 12 months – this includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$1.3b to keep the business going. Additionally, NOV has produced cash from operations of US$612m during the same period of time, leading to an operating cash to total debt ratio of 18%, indicating that NOV’s debt is not covered by operating cash.
Can NOV pay its short-term liabilities?
With current liabilities at US$2.1b, it seems that the business has been able to meet these obligations given the level of current assets of US$6.9b, with a current ratio of 3.3x. The current ratio is the number you get when you divide current assets by current liabilities. However, a ratio greater than 3x may be considered high by some.
Does NOV face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 20%, NOV's debt level may be seen as prudent. This range is considered safe as NOV is not taking on too much debt obligation, which may be constraining for future growth. Investors' risk associated with debt is very low with NOV, and the company has plenty of headroom and ability to raise debt should it need to in the future.
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 proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how NOV has been performing in the past. 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.
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 email@example.com. 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.