Tsakos Energy Navigation Limited (NYSE:TNP) is a small-cap stock with a market capitalization of US$311m. 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? Companies operating in the Oil and Gas industry, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into TNP here.
How much cash does TNP generate through its operations?
Over the past year, TNP has reduced its debt from US$1.8b to US$1.7b , which is made up of current and long term debt. With this debt repayment, TNP currently has US$273m remaining in cash and short-term investments for investing into the business. On top of this, TNP has generated US$99m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 5.9%, meaning that TNP’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In TNP’s case, it is able to generate 0.059x cash from its debt capital.
Can TNP meet its short-term obligations with the cash in hand?
At the current liabilities level of US$385m liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$378m, leading to a current ratio of 0.98x.
Does TNP face the risk of succumbing to its debt-load?
TNP is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since TNP is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
TNP’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for TNP’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Tsakos Energy Navigation to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TNP’s future growth? Take a look at our free research report of analyst consensus for TNP’s outlook.
- Valuation: What is TNP 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 TNP 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 firstname.lastname@example.org.