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Investors are always looking for growth in small-cap stocks like Unit Corporation (NYSE:UNT), with a market cap of US$428m. However, an important fact which most ignore is: how financially healthy is the business? Since UNT is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, this is just a partial view of the stock, and I recommend you dig deeper yourself into UNT here.
Does UNT Produce Much Cash Relative To Its Debt?
UNT's debt levels have fallen from US$805m to US$700m over the last 12 months – this includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$3.9m , ready to be used for running the business. Additionally, UNT has generated US$341m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 49%, meaning that UNT’s current level of operating cash is high enough to cover debt.
Does UNT’s liquid assets cover its short-term commitments?
With current liabilities at US$198m, the company may not have an easy time meeting these commitments with a current assets level of US$131m, leading to a current ratio of 0.66x. The current ratio is calculated by dividing current assets by current liabilities.
Is UNT’s debt level acceptable?
With debt reaching 44% of equity, UNT may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since UNT is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although UNT’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for UNT's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Unit to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for UNT’s future growth? Take a look at our free research report of analyst consensus for UNT’s outlook.
- Valuation: What is UNT 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 UNT 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.