Stocks with market capitalization between $2B and $10B, such as Subsea 7 SA (OB:SUBC) with a size of US$39.82b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine SUBC’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Subsea 7’s financial health, so you should conduct further analysis into SUBC here.
How much cash does SUBC generate through its operations?
SUBC has shrunken its total debt levels in the last twelve months, from US$857.80m to US$276.70m , which comprises of short- and long-term debt. With this reduction in debt, SUBC currently has US$1.01b remaining in cash and short-term investments , ready to deploy into the business. On top of this, SUBC has generated US$150.30m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 54.32%, meaning that SUBC’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In SUBC’s case, it is able to generate 0.54x cash from its debt capital.
Can SUBC meet its short-term obligations with the cash in hand?
With current liabilities at US$1.32b, the company has been able to meet these commitments with a current assets level of US$2.22b, leading to a 1.69x current account ratio. Usually, for Energy Services companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can SUBC service its debt comfortably?
With a debt-to-equity ratio of 4.60%, SUBC’s debt level is relatively low. This range is considered safe as SUBC is not taking on too much debt obligation, which may be constraining for future growth.
SUBC 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 SUBC’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Subsea 7 to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SUBC’s future growth? Take a look at our free research report of analyst consensus for SUBC’s outlook.
- Valuation: What is SUBC 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 SUBC 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.