Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Ormat Technologies Inc (NYSE:ORA) with a market-capitalization of $3.34B, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine ORA’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending 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 ORA here. View our latest analysis for Ormat Technologies
Does ORA generate an acceptable amount of cash through operations?
ORA has sustained its debt level by about $938.8M over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, ORA’s cash and short-term investments stands at $230.2M for investing into the business. Moreover, ORA has generated $159.3M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 16.97%, meaning that ORA’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ORA’s case, it is able to generate 0.17x cash from its debt capital.
Does ORA’s liquid assets cover its short-term commitments?
Looking at ORA’s most recent $189.3M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of $472.8M, with a current ratio of 2.5x. Generally, for Renewable Energy companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can ORA service its debt comfortably?With debt reaching 71.72% of equity, ORA may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In ORA’s case, the ratio of 3.78x 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.
ORA’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure ORA has company-specific issues impacting its capital structure decisions. I recommend you continue to research Ormat Technologies to get a better picture of the stock by looking at:
1. 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.
2. 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.
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.