Net Debt to EBITDA
As shipping is a capital intensive industry, a huge amount of debt on the balance sheet is common, and this should not worry investors. Having such high leverage is similar to other capital intensive companies like upstream companies (XOP). But it is important for investors to know whether the company has the capacity to repay its debt obligation.
Capacity to repay debt obligations
Net debt to EBITDA for Frontline (FRO) has drastically decreased from 9x to 3x, as the company paid off a substantial amount of debt in the second quarter. Tsakos Energy Navigation (TNP) has the highest ratio of 4.5. This implies that it will take around 4.5 years for the company to repay its debt if net debt and EBITDA are to stay constant. Out of the total debt, the company is supposed to pay back almost 16% of total loans within one year, 32% within three years, and the remaining in over three years.
Ratios for Teekay Tankers (TNK), DHT Holdings (DHT), and Euronav (EURN) are 3.58, 2.97, and 2.84, respectively. Nordic American Tanker (NAT) has consistently maintained a very low financial risk. The company’s debt level has not changed in the last eight quarters. The company has a ratio of 0.96. With the current EBITDA level, the company will need less than one year to repay its total debt obligation.
The current ratio is another way to estimate a company’s liquidity. Current ratio indicates the ability of a company to pay its short-term obligations using its short-term assets. The higher the ratio, the better the company can service its short-term liabilities, and vice versa.
Along with a very comfortable solvency position, Nordic American Tanker (NAT) also has a very comfortable liquidity position with a current ratio of 8.13. Other companies also do not have liquidity concerns. The current ratio for Frontline (FRO), Teekay Tankers (TNK), DHT Holdings (DHT), and Euronav (EURN) are 1.3, 1.02, 2.53, and 1.46, respectively.