uploads///Net debt to EBITDA

Will Schlumberger’s Debt Be a Concern in 2017?

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Feb. 23 2017, Updated 10:38 a.m. ET

Schlumberger’s net debt to EBITDA

Schlumberger’s (SLB) net debt-to-adjusted trailing-12-month EBITDA (earnings before interest, tax, depreciation, and amortization) shot up from 4Q15 to 4Q16.

Net debt-to-EBITDA reflects how easily a company can repay its debt from its operational earnings and available cash. Schlumberger’s smaller market cap peer Flotek Industries’ (FTK) net debt was $43.5 million on December 31, 2016, compared to SLB’s $10.4 billion. Tidewater’s (TDW) net debt was $1.4 billion on the same date. SLB makes up 18.6% of the iShares U.S. Oil Equipment & Services ETF (IEZ).

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Schlumberger’s indebtedness

Schlumberger’s debt-to-EBITDA multiple has risen steadily since 2Q15. From 4Q15 to 4Q16, its total debt rose 3%. However, its cash and marketable securities fell 29% during the same period, which more than offset its rise in total debt. In effect, its net debt rose 74% during the period.

In 2016, Schlumberger’s cash balance fell on account of its Cameron acquisition and its share repurchases. SLB’s adjusted EBITDA fell during the same period, so its net debt-to-adjusted EBITDA ratio spiked to ~7x in 4Q16 from 0.8x in 4Q15.

What’s Schlumberger’s liquidity?

On December 31, 2016, Schlumberger had $9.3 billion in cash and short-term investments on hand. Schlumberger also had $4.0 billion in unused credit facility on the same date. SLB’s management believes that these amounts are sufficient to meet its business requirements for the next year.

Next, we’ll discuss Schlumberger’s free cash flow.

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