Investors are always looking for growth in small-cap stocks like Ophir Energy Plc (LSE:OPHR), with a market cap of UK£450.33M. However, an important fact which most ignore is: how financially healthy is the business? Oil and Gas companies, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into OPHR here.
Does OPHR generate enough cash through operations?
Over the past year, OPHR has reduced its debt from US$200.31M to US$106.65M – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$223.78M for investing into the business. Additionally, OPHR has produced US$108.68M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 101.91%, meaning that OPHR’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In OPHR’s case, it is able to generate 1.02x cash from its debt capital.
Does OPHR’s liquid assets cover its short-term commitments?
Looking at OPHR’s most recent US$95.64M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$902.64M, with a current ratio of 9.44x. However, a ratio greater than 3x may be considered as too high, as OPHR could be holding too much capital in a low-return investment environment.
Does OPHR face the risk of succumbing to its debt-load?With debt at 7.30% of equity, OPHR may be thought of as having low leverage. This range is considered safe as OPHR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for OPHR, and the company also has the ability and headroom to increase debt if needed going forward.
OPHR has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for OPHR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Ophir Energy to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OPHR’s future growth? Take a look at our free research report of analyst consensus for OPHR’s outlook.
- Historical Performance: What has OPHR’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.