Oceaneering International, Inc. (NYSE:OII) is a small-cap stock with a market capitalization of US$1.6b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Energy Services companies, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into OII here.
How much cash does OII generate through its operations?
OII’s debt level has been constant at around US$792m over the previous year – this includes long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$370m for investing into the business. Moreover, OII has generated US$28m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 3.6%, signalling that OII’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 OII’s case, it is able to generate 0.036x cash from its debt capital.
Can OII pay its short-term liabilities?
With current liabilities at US$476m, it seems that the business has been able to meet these commitments with a current assets level of US$1.2b, leading to a 2.5x current account ratio. Usually, for Energy Services companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can OII service its debt comfortably?
With a debt-to-equity ratio of 53%, OII can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
OII’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around OII’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for OII’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Oceaneering International to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OII’s future growth? Take a look at our free research report of analyst consensus for OII’s outlook.
- Valuation: What is OII 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 OII 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 email@example.com.