Caverton Support Offshore Group is considered a high risk to investors and lenders because of its high debt to equity ratio that indicates it finances a significant amount of its potential growth through borrowing.
A levered firm (with more debt than equity) is susceptible to bankruptcy when it is unable to meet financial obligations or unable to pay interest on money borrowed.
However, Caverton is not at the brink of bankruptcy, but a continued deterioration in operating income means it has to borrow more to finance its balance sheet.
For the year ended December 2021, the company’s debt to equity ratio increased to 177.36 percent from 49.38 percent as at December 2020.
A debt to equity ratio of 1.77 means for every N1 in equity, the firm has 1.77 in leverage.
Total debt (long and short term) spiked by 183.11 to N30.69 billion in December 2021 from N10.84 billion as at December 2020.
Interest coverage ratio stood at 0.001, which signals the company has difficulty paying the interest due on outstanding debt.
Caverton was hard hit by the coronavirus pandemic that crippled economic activities and tipped the country into a recession and the reopening of the economy that helped lift the county out of recession is not enough to underpin the earnings of the Support Offshore firm.
The company is also reeling from rising operating cost and foreign exchange loss brought on by a weak currency as the central bank has been devaluing the currency to fend off the effect of macroeconomic shocks on the external reserve.
It posted a loss of N4.34 billion in 2021, from a profit of N1.18 billion the previous year.
Operating profit reduced by 99.50 percent to N26.31 million in the period under review from N5.28 million the previous year.
“Despite these results Caverton remains the leading provider of oil and gas logistics in the Nigerian oil sector and will continue to strive to provide safe and efficient service to its clients whilst utilizing its cash reserves to accommodate accrued losses,” said Bode Makanjuola, Chief Executive Officer at Caverton Offshore Support Group Plc.
“To further boost revenues, Caverton has been exploring further opportunities within and outside the oil and gas sector. In addition to growing our market share in the oil and gas logistics sector our primary focus for the year will be on third party training and maintenance.”