Viper Energy Partners, Exxon Mobil, Chevron Corporation and Apache Corporationare all companies within the energy industry with a long – standing enlistment within the stock exchange. Exxon, Chevron and Apache are listed on the New York Stock Exchange whereas Viper Energy Partners LP is listed on NASDAQ. Some companies such as Exxon Mobil have been listed on the stock exchange for over 17 years but lately have shown signs of stagnation in their stock prices. Exxon Mobil showed a 2% fall in its stock price over the past year, Chevron Corporation reported a 2% increase in its share price whereas Apache Corporation reported a 15% drop in its share price over the same period. Impressively, Viper Energy Partners showed a 67% increase in its share price over the same period despite being in the same industry. It may be worth looking into why the company’s share price has risen so much over the previous year.
Viper Energy Partners LP are a limitedpartnership formed with aim of owning, acquiring and exploiting Oil and natural gas properties in North America.
Equity investing is typically a long – term venture with the intention of making capital gains. With this in mind, typical financial analysts use a combination of long term performance stock performance, the financial health of a company for investing in overseas stock as well as relevant industry news to deduce their investment recommendation of a particular company.
In this regard, we will assess Viper Energy with these metrics in mind
Assessing a company’s financial health may be deemed as the bare minimum benchmark when assessing one’s financial decision. It involves assessing a company’s financial ratios. Financial ratios may be broken down into four main categories: Liquidity ratios, profitability ratios, leverage ratios and efficiency ratios. Since Viper is relatively a young company, we will closely examine the profitability ratios as well as its leverage ratios.
Profitability ratios measure the company’s earning capacity. These are the typical margins that measure a return after deducting expenses. Perhaps the most important of these would be the profit margin, the return on equity (ROE) as well as the return on assets (ROA).
Looking at Viper’s financial statements, the company enjoyed a massive improvement in its net profit margin from a net loss margin of about 1% in 2016 to a net profit margin of 69% in 2017. While seemingly outrageous at first this may be attributed to the fact that the company is currently in its growth stage which saw it double its revenue in 2017. Financial guidance indicates a further increase in increased production of oil which will likely result in higher revenue.
Leverage ratios measure the solvency of a company. This involves measuring a company’s debt relative to its equity or assets. High debt levels may not be ideal for a company as it implies high interest costs (from paying back the debt) and may increase the company’s cost of debt. This is because the higher debt levels make the company riskier to loan to. Consequently, lenders must charge higher interest rates to the company in order to compensate for the risk.
Looking at Viper’s debt to assets ratio reveals healthy leverage levels; the company yielded a ratio of 0.1 in 2017 as compared to 0.18 in 2016. This shows an improving position in the company’s leverage. This is especially promising since companies within the growth stage tend to use debt financing as a means of funnelling increased business. This leads to higher margins but may negatively affect the company’s creditworthiness especially if they are over leveraged.
Overall Viper Energy Partners continues to show impressive growth and may be deemed as worthwhile investment for those looking for assets to add to their portfolios as well as investors currently involved in international share trading.