What Investors Should Know About Civeo Corporation's (NYSE:CVEO) Financial Strength

Civeo Corporation (NYSE:CVEO) is a small-cap stock with a market capitalization of US$654.02M. 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? Since CVEO is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into CVEO here.

How does CVEO’s operating cash flow stack up against its debt?

Over the past year, CVEO has reduced its debt from US$353.27M to US$294.59M , which is made up of current and long term debt. With this debt payback, CVEO currently has US$32.65M remaining in cash and short-term investments , ready to deploy into the business. On top of this, CVEO has generated cash from operations of US$56.83M in the last twelve months, resulting in an operating cash to total debt ratio of 19.29%, signalling that CVEO’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In CVEO’s case, it is able to generate 0.19x cash from its debt capital.

Does CVEO’s liquid assets cover its short-term commitments?

At the current liabilities level of US$75.63M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$132.21M, with a current ratio of 1.75x. For Commercial Services companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Does CVEO face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 61.84%, CVEO can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since CVEO is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

CVEO’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven't considered other factors such as how CVEO has been performing in the past. You should continue to research Civeo to get a better picture of the stock by looking at:

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

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.