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Is Owens-Illinois Inc’s (NYSE:OI) Balance Sheet A Threat To Its Future?

Alexis Guardo

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Owens-Illinois Inc (NYSE:OI), with a market cap of $3.66B, are often out of the spotlight. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at OI’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into OI here. Check out our latest analysis for Owens-Illinois

How does OI’s operating cash flow stack up against its debt?

OI has sustained its debt level by about $5,328.0M over the last 12 months made up of current and long term debt. At this stable level of debt, OI currently has $492.0M remaining in cash and short-term investments for investing into the business. Moreover, OI has produced cash from operations of $751.0M over the same time period, leading to an operating cash to total debt ratio of 14.10%, indicating that OI’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In OI’s case, it is able to generate 0.14x cash from its debt capital.

Does OI’s liquid assets cover its short-term commitments?

With current liabilities at $2,060.0M, it seems that the business has been able to meet these obligations given the level of current assets of $2,254.0M, with a current ratio of 1.09x. Usually, for Packaging companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

NYSE:OI Historical Debt Feb 6th 18

Can OI service its debt comfortably?

OI is a highly-leveraged company with debt exceeding equity by over 100%. 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 OI’s case, the ratio of 2.54x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.

Next Steps:

OI’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure OI has company-specific issues impacting its capital structure decisions. I recommend you continue to research Owens-Illinois to get a better picture of the stock by looking at:

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.