While small-cap stocks, such as International Seaways Inc (NYSE:INSW) with its market cap of US$709.75m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Oil and Gas industry, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into INSW here.
Does INSW produce enough cash relative to debt?
INSW has built up its total debt levels in the last twelve months, from US$439.65m to US$0 – this includes both the current and long-term debt. With this growth in debt, INSW’s cash and short-term investments stands at US$60.04m for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of INSW’s operating efficiency ratios such as ROA here.
Can INSW meet its short-term obligations with the cash in hand?
Looking at INSW’s most recent US$47.24m liabilities, the company has been able to meet these obligations given the level of current assets of US$131.79m, with a current ratio of 2.79x. 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.
Does INSW face the risk of succumbing to its debt-load?With a debt-to-equity ratio of 49.01%, INSW can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since INSW is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
INSW’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for INSW’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research International Seaways to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for INSW’s future growth? Take a look at our free research report of analyst consensus for INSW’s outlook.
- Valuation: What is INSW 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 INSW 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.