HollyFrontier Corporation (NYSE:HFC), a large-cap worth US$11.44b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an adundance of stock in the public market available for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Assessing the most recent data for HFC, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
How does HFC’s operating cash flow stack up against its debt?
HFC’s debt levels surged from US$2.23b to US$2.39b over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$979.9m for investing into the business. Additionally, HFC has generated cash from operations of US$1.21b over the same time period, resulting in an operating cash to total debt ratio of 50.5%, indicating that HFC’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In HFC’s case, it is able to generate 0.51x cash from its debt capital.
Can HFC pay its short-term liabilities?
With current liabilities at US$1.56b, the company has been able to meet these commitments with a current assets level of US$3.70b, leading to a 2.38x current account ratio. Usually, for Oil and Gas companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can HFC service its debt comfortably?
With a debt-to-equity ratio of 37.3%, HFC’s debt level may be seen as prudent. This range is considered safe as HFC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if HFC’s debt levels are sustainable by measuring interest payments against earnings of a company. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. In HFC’s case, the ratio of 14.24x suggests that interest is amply covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as HFC is a safe investment.
HFC’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for HFC’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research HollyFrontier to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HFC’s future growth? Take a look at our free research report of analyst consensus for HFC’s outlook.
- Valuation: What is HFC 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 HFC 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.