Yahoo Finance What does Whitecap Resources Inc’s (TSE:WCP) Balance Sheet Tell Us About Its Future?
Whitecap Resources Inc (TSE:WCP) is a small-cap stock with a market capitalization of CA$2.6b. 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, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into WCP here.
How does WCP’s operating cash flow stack up against its debt?
Over the past year, WCP has ramped up its debt from CA$766m to CA$1.3b – this includes both the current and long-term debt. With this increase in debt, WCP’s cash and short-term investments stands at CA$11m , ready to deploy into the business. Additionally, WCP has generated CA$611m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 48%, signalling that WCP’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In WCP’s case, it is able to generate 0.48x cash from its debt capital.
Can WCP meet its short-term obligations with the cash in hand?
At the current liabilities level of CA$349m liabilities, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.51x.
Is WCP’s debt level acceptable?
WCP’s level of debt is appropriate relative to its total equity, at 39%. This range is considered safe as WCP is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with WCP, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
WCP has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. However, 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 WCP’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Whitecap Resources to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for WCP’s future growth? Take a look at our free research report of analyst consensus for WCP’s outlook.
Valuation: What is WCP 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 WCP 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.
