Yahoo Finance What does Cenovus Energy Inc’s (TSE:CVE) Balance Sheet Tell Us About Its Future?
Investors pursuing a solid, dependable stock investment can often be led to Cenovus Energy Inc (TSX:CVE), a large-cap worth CA$17.22B. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, its financial health remains the key to continued success. I will provide an overview of Cenovus Energy’s financial liquidity and leverage to give you an idea of Cenovus Energy’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into CVE here. Check out our latest analysis for Cenovus Energy
How does CVE’s operating cash flow stack up against its debt?
CVE’s debt levels surged from CA$6.38B to CA$9.51B over the last 12 months – this includes both the current and long-term debt. With this rise in debt, CVE currently has CA$610.00M remaining in cash and short-term investments for investing into the business. Additionally, CVE has produced cash from operations of CA$3.06B during the same period of time, resulting in an operating cash to total debt ratio of 32.16%, meaning that CVE’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 CVE’s case, it is able to generate 0.32x cash from its debt capital.
Can CVE meet its short-term obligations with the cash in hand?
At the current liabilities level of CA$4.44B liabilities, it appears that the company has been able to meet these commitments with a current assets level of CA$5.01B, leading to a 1.13x current account ratio. For Oil and Gas companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CVE service its debt comfortably?
With a debt-to-equity ratio of 50.47%, CVE can be considered as an above-average leveraged company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies.
Next Steps:
CVE’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. Since there is also no concerns around CVE’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for CVE’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Cenovus Energy to get a more holistic view of the large-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for CVE’s future growth? Take a look at our free research report of analyst consensus for CVE’s outlook.
Valuation: What is CVE 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 CVE 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 pass 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.
