From 2010 to 2013 the debt to equity ratio for a certain oil and gas company was stable at around 0.8X. Then in 2014 this balloons all the way to 1.87X. Since then it has stabilised and as per the latest balance sheet the debt to equity ratio is at 1.67X.
The company was trading at a book multiple of 4 three years back and now at 0.6X book value.
Anyway, what has caught my eye is the debt to equity situation as I described above. Looking at it isolatedly, is the fact that the DE ratio has gone up over twice since 2013 an extremely clear red flag, or is this not necessarily the case? Assuming the company has a continuous and large order book, profit margins increase and the general industry recovers, will the DE ratio situation in and of itself deter you from considering investing in such a company?
PS: Long story short, how much importance should be given to a drastic rise in DE ratio (that has since stabalized) and consequently a drastic reduction in shareholders equity for a distressed company (irrespective of industrial sector) that has long term staying power?
Submitted May 01, 2017 at 05:52AM by learner1314 http://ift.tt/2pOg8df
