Is NexTier Oilfield Solutions (NYSE:NEX) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies NexTier Oilfield Solutions Inc. (NYSE:NEX) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for NexTier Oilfield Solutions

How Much Debt Does NexTier Oilfield Solutions Carry?

The image below, which you can click on for greater detail, shows that at September 2021 NexTier Oilfield Solutions had debt of US$378.3m, up from US$344.8m in one year. However, it does have US$140.2m in cash offsetting this, leading to net debt of about US$238.1m.

How Healthy Is NexTier Oilfield Solutions' Balance Sheet?

We can see from the most recent balance sheet that NexTier Oilfield Solutions had liabilities of US$461.6m falling due within a year, and liabilities of US$428.2m due beyond that. Offsetting these obligations, it had cash of US$140.2m as well as receivables valued at US$265.4m due within 12 months. So it has liabilities totalling US$484.2m more than its cash and near-term receivables, combined.

NexTier Oilfield Solutions has a market capitalization of US$871.1m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine NexTier Oilfield Solutions's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, NexTier Oilfield Solutions made a loss at the EBIT level, and saw its revenue drop to US$1.1b, which is a fall of 26%. That makes us nervous, to say the least.

Caveat Emptor

While NexTier Oilfield Solutions's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable US$190m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$189m of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for NexTier Oilfield Solutions you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.