With a market capitalization of US$55b, EOG Resources, Inc. (NYSE:EOG) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Assessing the most recent data for EOG, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
View our latest analysis for EOG Resources
How much cash does EOG generate through its operations?
Over the past year, EOG has maintained its debt levels at around US$6.4b – this includes long-term debt. At this stable level of debt, EOG’s cash and short-term investments stands at US$1.3b , ready to deploy into the business. Moreover, EOG has generated cash from operations of US$7.0b in the last twelve months, resulting in an operating cash to total debt ratio of 109%, indicating that EOG’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In EOG’s case, it is able to generate 1.09x cash from its debt capital.
Can EOG meet its short-term obligations with the cash in hand?
Looking at EOG’s US$4.4b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$4.8b, leading to a 1.09x current account ratio. Usually, for Oil and Gas companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is EOG’s debt level acceptable?
With a debt-to-equity ratio of 35%, EOG’s debt level may be seen as prudent. EOG is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether EOG 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. For EOG, the ratio of 15.68x suggests that interest is comfortably covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like EOG are considered a risk-averse investment.
Next Steps:
EOG has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure EOG has company-specific issues impacting its capital structure decisions. I suggest you continue to research EOG Resources to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EOG’s future growth? Take a look at our free research report of analyst consensus for EOG’s outlook.
- Valuation: What is EOG 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 EOG 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.