Is Public Joint Stock Oil Company Bashneft (MCX:BANE) As Strong As Its Balance Sheet Indicates?

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Public Joint Stock Oil Company Bashneft (MCX:BANE), with a market cap of RUруб335b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. BANE’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Oil Company Bashneft's financial health, so you should conduct further analysis into BANE here.

See our latest analysis for Oil Company Bashneft

BANE’s Debt (And Cash Flows)

Over the past year, BANE has maintained its debt levels at around RUруб124b including long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at RUруб54b , ready to be used for running the business. On top of this, BANE has generated cash from operations of RUруб132b in the last twelve months, leading to an operating cash to total debt ratio of 107%, signalling that BANE’s debt is appropriately covered by operating cash.

Can BANE meet its short-term obligations with the cash in hand?

Looking at BANE’s RUруб101b in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of RUруб273b, leading to a 2.71x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. 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.

Can BANE service its debt comfortably?

BANE’s level of debt is appropriate relative to its total equity, at 27%. This range is considered safe as BANE is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if BANE’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 BANE, the ratio of 17.75x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BANE’s high interest coverage is seen as responsible and safe practice.

Next Steps:

BANE’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for BANE's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Oil Company Bashneft to get a better picture of the stock by looking at:

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

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 editorial-team@simplywallst.com. 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.