Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Beach Energy Limited (ASX:BPT), with a market cap of AU$4.6b, often get neglected by retail investors. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at BPT’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into BPT here.
BPT’s Debt (And Cash Flows)
Over the past year, BPT has borrowed debt capital of around AU$521m – which includes long-term debt. With this ramp up in debt, BPT currently has AU$204m remaining in cash and short-term investments , ready to be used for running the business. On top of this, BPT has generated AU$968m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 186%, signalling that BPT’s operating cash is sufficient to cover its debt.
Can BPT pay its short-term liabilities?
At the current liabilities level of AU$676m, the company has been able to meet these commitments with a current assets level of AU$969m, leading to a 1.43x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. 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 BPT face the risk of succumbing to its debt-load?
With debt at 25% of equity, BPT may be thought of as appropriately levered. BPT is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if BPT’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For BPT, the ratio of 17.59x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BPT’s high interest coverage is seen as responsible and safe practice.
BPT’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for BPT’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Beach Energy to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BPT’s future growth? Take a look at our free research report of analyst consensus for BPT’s outlook.
- Valuation: What is BPT 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 BPT 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.