Is Whiting Petroleum Corporation’s (NYSE:WLL) Balance Sheet A Threat To Its Future?

Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Whiting Petroleum Corporation (NYSE:WLL) with a market-capitalization of US$3.62B, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at WLL’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into WLL here. See our latest analysis for Whiting Petroleum

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

WLL’s debt levels surged from US$3.54B to US$3.72B over the last 12 months , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$879.38M for investing into the business. Moreover, WLL has generated US$577.11M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 15.50%, signalling that WLL’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In WLL’s case, it is able to generate 0.15x cash from its debt capital.

Can WLL pay its short-term liabilities?

Looking at WLL’s most recent US$1.55B liabilities, it appears that the company has not been able to meet these commitments with a current assets level of US$1.19B, leading to a 0.77x current account ratio. which is under the appropriate industry ratio of 3x.

NYSE:WLL Historical Debt Apr 21st 18
NYSE:WLL Historical Debt Apr 21st 18

Can WLL service its debt comfortably?

WLL is a relatively highly levered company with a debt-to-equity of 95.01%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since WLL is presently unprofitable, sustainability of its current state of operations becomes a concern. 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:

With a high level of debt on its balance sheet, WLL could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for WLL to increase its operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the mid-cap. This is only a rough assessment of financial health, and I’m sure WLL has company-specific issues impacting its capital structure decisions. I recommend you continue to research Whiting Petroleum to get a more holistic view of the stock by looking at:

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