Tenaris SA. (BIT:TEN): Time For A Financial Health Check
Tenaris SA. (BIT:TEN), a large-cap worth €20.08B, comes to mind for investors seeking a strong and reliable stock investment. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. However, the key to extending previous success is in the health of the company’s financials. I will provide an overview of Tenaris’s financial liquidity and leverage to give you an idea of Tenaris’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into TEN here. Check out our latest analysis for Tenaris
Does TEN produce enough cash relative to debt?
Over the past year, TEN has ramped up its debt from US$840.24M to US$965.86M , which comprises of short- and long-term debt. With this increase in debt, TEN’s cash and short-term investments stands at US$1.52B for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of TEN’s operating efficiency ratios such as ROA here.
Does TEN’s liquid assets cover its short-term commitments?
At the current liabilities level of US$2.07B liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$5.38B, leading to a 2.6x current account ratio. Generally, for Energy Services companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does TEN face the risk of succumbing to its debt-load?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. With debt at 8.49% of equity, TEN may be thought of as having low leverage. TEN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
Although TEN’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how TEN has been performing in the past. I suggest you continue to research Tenaris to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for TEN’s future growth? Take a look at our free research report of analyst consensus for TEN’s outlook.
Valuation: What is TEN 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 TEN 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 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.
