Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like CVR Energy, Inc. (NYSE:CVI), with a market cap of US$4.3b, are often out of the spotlight. 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. Today we will look at CVI’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of CVR Energy’s financial health, so you should conduct further analysis into CVI here.
CVI’s Debt (And Cash Flows)
CVI’s debt level has been constant at around US$1.2b over the previous year – this includes long-term debt. At this current level of debt, CVI’s cash and short-term investments stands at US$668m , ready to be used for running the business. Moreover, CVI has produced cash from operations of US$620m in the last twelve months, resulting in an operating cash to total debt ratio of 53%, indicating that CVI’s debt is appropriately covered by operating cash.
Does CVI’s liquid assets cover its short-term commitments?
Looking at CVI’s US$496m in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$1.3b, leading to a 2.61x current account ratio. The current ratio is the number you get when you divide 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.
Does CVI face the risk of succumbing to its debt-load?
CVI is a relatively highly levered company with a debt-to-equity of 63%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether CVI is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In CVI’s, case, the ratio of 5.81x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
CVI’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around CVI’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how CVI has been performing in the past. You should continue to research CVR Energy to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CVI’s future growth? Take a look at our free research report of analyst consensus for CVI’s outlook.
- Valuation: What is CVI 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 CVI 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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.