Capacity to repay
As the crude tanker industry is capital intensive, a huge amount of debt on a company’s balance sheet is common, and this shouldn’t worry investors. However, it’s important for investors to know whether a company has the capacity to repay its debt obligation.
The net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio indicates how many years it will take for a company to repay its debt if its net debt and EBITDA stay constant. Net debt is calculated as total debt minus cash and cash equivalents.
Frontline (FRO) and Teekay Tankers (TNK) has the highest net-debt-to-equity ratio at 3.77 and 3.48, respectively. This implies that it will take around three to four years for the company to repay its debt if its net debt and EBITDA remain constant.
Tsakos Energy Navigation (TNP) had a net-debt-to-equity ratio of 5.0 as of the end of 2Q16. This increased from 4.6 a year ago.
Nordic American Tankers (NAT) has consistently maintained very low financial risk. The company’s debt level was constant from 2012 to 2015, and then increased in 2015. The company has a net-debt-to-EBITDA ratio of 1.8. It has one of the lowest ratios along with Euronav (EURN), which also has a ratio of 1.8. DHT Holdings (DHT) has a ratio of 2.3.
A company’s current ratio is a way to estimate its 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 having a very comfortable solvency position, Nordic American Tankers also has a very comfortable liquidity position with a current ratio of 4.8, the highest among peers. None of the companies have liquidity concerns, as all the crude (DBO) tanker companies have current assets more than their current liabilities.
DHT Holdings (DHT), Euronav , Tsakos, Frontline, and Teekay Tankers have current ratios of 2.8, 1.5, 1.1, 1.3, and 1.1, respectively.