Stocks with market capitalization between $2B and $10B, such as Ormat Technologies Inc (NYSE:ORA) with a size of US$2.67b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at ORA’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ORA here. View out our latest analysis for Ormat Technologies
How does ORA’s operating cash flow stack up against its debt?
ORA’s debt level has been constant at around US$913.60m over the previous year comprising of short- and long-term debt. At this current level of debt, ORA currently has US$47.82m remaining in cash and short-term investments for investing into the business. Moreover, ORA has generated US$245.58m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 26.88%, signalling that ORA’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ORA’s case, it is able to generate 0.27x cash from its debt capital.
Does ORA’s liquid assets cover its short-term commitments?
Looking at ORA’s most recent US$283.35m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.14x. Generally, for Renewable Energy companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can ORA service its debt comfortably?
ORA is a relatively highly levered company with a debt-to-equity of 70.34%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if ORA’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ORA, the ratio of 3.92x 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.
Although ORA’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for ORA’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Ormat Technologies to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ORA’s future growth? Take a look at our free research report of analyst consensus for ORA’s outlook.
- Valuation: What is ORA 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 ORA 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.