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Investors are always looking for growth in small-cap stocks like TransGlobe Energy Corporation (NASDAQ:TGA), with a market cap of US$131m. However, an important fact which most ignore is: how financially healthy is the business? Oil and Gas companies, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into TGA here.
How does TGA’s operating cash flow stack up against its debt?
TGA’s debt levels have fallen from US$80m to US$53m over the last 12 months , which includes long-term debt. With this debt payback, TGA currently has US$63m remaining in cash and short-term investments , ready to deploy into the business. Moreover, TGA has generated cash from operations of US$104m over the same time period, leading to an operating cash to total debt ratio of 197%, signalling that TGA’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In TGA’s case, it is able to generate 1.97x cash from its debt capital.
Can TGA pay its short-term liabilities?
With current liabilities at US$33m, it appears that the company has been able to meet these commitments with a current assets level of US$85m, leading to a 2.59x current account ratio. Usually, for Oil and Gas companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does TGA face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 27%, TGA’s debt level may be seen as prudent. This range is considered safe as TGA is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for TGA, and the company also has the ability and headroom to increase debt if needed going forward.
TGA has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for TGA’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research TransGlobe Energy to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TGA’s future growth? Take a look at our free research report of analyst consensus for TGA’s outlook.
- Valuation: What is TGA 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 TGA 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 firstname.lastname@example.org.