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What Investors Should Know About Tullow Oil plc’s (ISE:TQW) Financial Strength

Stocks with market capitalization between $2B and $10B, such as Tullow Oil plc (ISE:TQW) with a size of €4.10B, do not attract as much attention from the investing community as do the small-caps and large-caps. 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. Let’s take a look at TQW’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into TQW here. See our latest analysis for Tullow Oil

How does TQW’s operating cash flow stack up against its debt?

TQW’s debt level has been constant at around US$5.15B over the previous year – this includes both the current and long-term debt. At this constant level of debt, TQW’s cash and short-term investments stands at US$284.00M for investing into the business. Moreover, TQW has produced US$1.22B in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 23.74%, indicating that TQW’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In TQW’s case, it is able to generate 0.24x cash from its debt capital.

Can TQW pay its short-term liabilities?

Looking at TQW’s most recent US$1.35B liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$2.32B, with a current ratio of 1.72x. 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.

ISE:TQW Historical Debt May 25th 18
ISE:TQW Historical Debt May 25th 18

Is TQW’s debt level acceptable?

With total debt exceeding equities, TQW is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since TQW is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

TQW’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure TQW has company-specific issues impacting its capital structure decisions. I suggest you continue to research Tullow Oil to get a more holistic view of the stock by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for TQW’s future growth? Take a look at our free research report of analyst consensus for TQW’s outlook.

  2. Valuation: What is TQW 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 TQW is currently mispriced by the market.

  3. 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.