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Is US Energy Corp (USEG) A Financially Sound Company?

While small-cap stocks, such as US Energy Corp (NASDAQ:USEG) with its market cap of USD $6.52M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Why is it important? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. Here are few basic financial health checks to judge whether a company fits the bill or there is an additional risk which you should consider before taking the plunge. See our latest analysis for USEG

Does USEG generate an acceptable amount of cash through operations?

NasdaqCM:USEG Historical Debt Nov 4th 17
NasdaqCM:USEG Historical Debt Nov 4th 17

There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. These adverse events bring devastation and yet does not absolve the company from its debt. Fortunately, we can test the company’s capacity to pay back its debtholders without summoning any catastrophes by looking at how much cash it generates from its current operations. In the case of USEG, operating cash flow turned out to be -0.08x its debt level over the past twelve months. This means what USEG can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at USEG’s operations at this point in time.

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

What about its other commitments such as payments to suppliers and salaries to its employees? As cash flow from operation is hindered by adverse events, USEG may need to liquidate its short-term assets to meet these upcoming payments. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that USEG is unable to meet all of its upcoming commitments with its cash and other short-term assets. While this is not abnormal for companies, as their cash is better invested in the business or returned to investors than lying around, it does bring about some concerns should any unfavourable circumstances arise.

Can USEG service its debt comfortably?

While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. USEG’s debt-to-equity ratio exceeds 100%, which indicates that the company is holding a high level of debt relative to its net worth. In the event of financial turmoil, the company may experience difficulty meeting interest and other debt obligations.

Next Steps:

Are you a shareholder? With a high level of debt on its balance sheet, USEG could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for USEG to increase its operational efficiency. In addition to this, the company may struggle to meet its near term liabilities should an adverse event occur. In the future, USEG’s financial situation may change. You should always be keeping abreast of market expectations for USEG’s future growth on our free analysis platform.

Are you a potential investor? USEG’s large debt ratio along with low cash coverage of debt in addition to low liquidity coverage of near-term obligations may not build the strongest investment case. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of USEG’s track record. As a following step, you should take a look at USEG’s past performance analysis on our free platform to conclude on USEG’s financial health.


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.

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