【warbler with white eye ring】Is Matador Resources Company’s (NYSE:MTDR) Balance Sheet Strong Enough To Weather A Storm?

Matador Resources Company (

NYSE:MTDR

) is warbler with white eye ringa small-cap stock with a market capitalization of US$1.8b. 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, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I suggest you

dig deeper yourself into MTDR here

.

Does MTDR produce enough cash relative to debt?

MTDR has built up its total debt levels in the last twelve months, from US$574m to US$1.1b , which accounts for long term debt. With this growth in debt, MTDR’s cash and short-term investments stands at US$46m , ready to deploy into the business. On top of this, MTDR has generated US$496m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 47%, signalling that MTDR’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 MTDR’s case, it is able to generate 0.47x cash from its debt capital.

Can MTDR pay its short-term liabilities?

Looking at MTDR’s US$327m in current 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 0.69x.

NYSE:MTDR Historical Debt January 1st 19

Is MTDR’s debt level acceptable?

MTDR is a relatively highly levered company with a debt-to-equity of 62%. This is not unusual for small-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 MTDR’s case, the ratio of 7.33x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as MTDR’s high interest coverage is seen as responsible and safe practice.

Next Steps:

MTDR’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though 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 MTDR’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Matador Resources to get a better picture of the stock by looking at:

Story continues

Future Outlook

: What are well-informed industry analysts predicting for MTDR’s future growth? Take a look at our

free research report of analyst consensus

for MTDR’s outlook.

Historical Performance

: What has MTDR’s returns been like over the past? Go into more detail in the past track record analysis and take a look at

the free visual representations of our analysis

for more clarity.

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

[email protected]

.

View comments