Is Tidewater Midstream and Infrastructure Ltd (TSE:TWM) A Financially Sound Company?

Tidewater Midstream and Infrastructure Ltd (TSE:TWM) is a small-cap stock with a market capitalization of CA$427.91m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Oil and Gas companies, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into TWM here.

Does TWM produce enough cash relative to debt?

Over the past year, TWM has ramped up its debt from CA$25.10m to CA$198.39m – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at CA$10.97m , ready to deploy into the business. Moreover, TWM has produced cash from operations of CA$48.27m during the same period of time, leading to an operating cash to total debt ratio of 24.33%, signalling that TWM’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In TWM’s case, it is able to generate 0.24x cash from its debt capital.

Can TWM pay its short-term liabilities?

With current liabilities at CA$83.19m, the company has been able to meet these commitments with a current assets level of CA$104.30m, leading to a 1.25x current account ratio. For Oil and Gas companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

TSX:TWM Historical Debt August 9th 18
TSX:TWM Historical Debt August 9th 18

Can TWM service its debt comfortably?

With debt reaching 44.40% of equity, TWM may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In TWM’s case, the ratio of 10.45x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as TWM’s high interest coverage is seen as responsible and safe practice.

Next Steps:

At its current level of cash flow coverage, TWM has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure TWM has company-specific issues impacting its capital structure decisions. You should continue to research Tidewater Midstream and Infrastructure to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for TWM’s future growth? Take a look at our free research report of analyst consensus for TWM’s outlook.
  2. Valuation: What is TWM 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 TWM 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.

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