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Whiting Petroleum Corporation (NYSE:WLL): Time For A Financial Health Check

Simply Wall St

Stocks with market capitalization between $2B and $10B, such as Whiting Petroleum Corporation (NYSE:WLL) with a size of US$2.8b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. WLL’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. Don’t forget that this is a general and concentrated examination of Whiting Petroleum’s financial health, so you should conduct further analysis into WLL here.

Check out our latest analysis for Whiting Petroleum

Does WLL Produce Much Cash Relative To Its Debt?

Over the past year, WLL has reduced its debt from US$3.7b to US$2.8b – this includes long-term debt. With this debt repayment, WLL's cash and short-term investments stands at US$14m to keep the business going. Additionally, WLL has produced US$1.1b in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 39%, meaning that WLL’s operating cash is sufficient to cover its debt.

Can WLL pay its short-term liabilities?

At the current liabilities level of US$537m, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$398m, with a current ratio of 0.74x. The current ratio is the number you get when you divide current assets by current liabilities.

NYSE:WLL Historical Debt, April 15th 2019

Can WLL service its debt comfortably?

WLL is a relatively highly levered company with a debt-to-equity of 65%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether WLL is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In WLL's, case, the ratio of 2.89x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.

Next Steps:

WLL’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for WLL's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Whiting Petroleum to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for WLL’s future growth? Take a look at our free research report of analyst consensus for WLL’s outlook.
  2. Valuation: What is WLL 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 WLL is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.com. 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.