Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as RPC, Inc. (NYSE:RES) with a market-capitalization of US$2.1b, rarely draw their attention. 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. RES’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into RES here.
Can RES service its debt comfortably?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For RES, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with RES, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can RES meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, RPC has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$143m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.32x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
RES has zero-debt in addition to ample cash to cover its near-term liabilities. Its safe operations reduces risk for the company and its investors, though, some degree of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure RES has company-specific issues impacting its capital structure decisions. You should continue to research RPC to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RES’s future growth? Take a look at our free research report of analyst consensus for RES’s outlook.
- Valuation: What is RES 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 RES 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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