Yahoo Finance Chevron Corporation (NYSE:CVX): Financial Strength Analysis
Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Chevron Corporation (NYSE:CVX). With a market valuation of US$221b, CVX is a safe haven in times of market uncertainty due to its strong balance sheet. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Assessing the most recent data for CVX, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
Check out our latest analysis for Chevron
Does CVX produce enough cash relative to debt?
Over the past year, CVX has reduced its debt from US$42b to US$36b , which also accounts for long term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$9.7b , ready to deploy into the business. On top of this, CVX has generated US$28b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 77%, signalling that CVX’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CVX’s case, it is able to generate 0.77x cash from its debt capital.
Can CVX meet its short-term obligations with the cash in hand?
Looking at CVX’s US$29b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$36b, leading to a 1.22x current account ratio. Usually, for Oil and Gas companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is CVX’s debt level acceptable?
With debt at 23% of equity, CVX may be thought of as appropriately levered. CVX is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether CVX is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CVX’s case, the ratio of 19.64x suggests that interest is amply covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as CVX is a safe investment.
Next Steps:
CVX’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for CVX’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Chevron to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CVX’s future growth? Take a look at our free research report of analyst consensus for CVX’s outlook.
Valuation: What is CVX 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 CVX 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.
