Yahoo Finance What does Norwegian Cruise Line Holdings Ltd’s (NYSE:NCLH) Balance Sheet Tell Us About Its Future?
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Norwegian Cruise Line Holdings Ltd (NYSE:NCLH), with a market cap of US$10.0b, often get neglected by retail investors. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. This article will examine NCLH’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into NCLH here.
See our latest analysis for Norwegian Cruise Line Holdings
How does NCLH’s operating cash flow stack up against its debt?
Over the past year, NCLH has maintained its debt levels at around US$6.8b comprising of short- and long-term debt. At this constant level of debt, NCLH currently has US$206m remaining in cash and short-term investments , ready to deploy into the business. Additionally, NCLH has generated US$1.9b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 28%, meaning that NCLH’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In NCLH’s case, it is able to generate 0.28x cash from its debt capital.
Can NCLH pay its short-term liabilities?
With current liabilities at US$3.3b, the company may not be able to easily meet these obligations given the level of current assets of US$671m, with a current ratio of 0.2x.
Can NCLH service its debt comfortably?
NCLH is a highly-leveraged company with debt exceeding equity by over 100%. 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 NCLH’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 NCLH, the ratio of 4.3x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as NCLH’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although NCLH’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for NCLH’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Norwegian Cruise Line Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for NCLH’s future growth? Take a look at our free research report of analyst consensus for NCLH’s outlook.
Valuation: What is NCLH 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 NCLH 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 editorial-team@simplywallst.com.
