Explore NOV’s Fair Values from the Community and select yours
Legfinishary fund manager Li Lu (who Charlie Munger backed) once declared, ‘The hugegest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ When we believe about how risky a company is, we always like to see at its utilize of debt, since debt overload can lead to ruin. We note that NOV Inc. (NYSE:NOV) does have debt on its balance sheet. But should shareholders be worried about its utilize of debt?
When Is Debt A Problem?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things receive really bad, the lfinishers can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to receive debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that required capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, toreceiveher.
How Much Debt Does NOV Carry?
The chart below, which you can click on for greater detail, displays that NOV had US$1.73b in debt in June 2025; about the same as the year before. However, it does have US$1.08b in cash offsetting this, leading to net debt of about US$648.0m.
A Look At NOV’s Liabilities
Zooming in on the latest balance sheet data, we can see that NOV had liabilities of US$2.24b due within 12 months and liabilities of US$2.57b due beyond that. On the other hand, it had cash of US$1.08b and US$2.56b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.17b.
This deficit isn’t so bad becautilize NOV is worth US$4.52b, and thus could probably raise enough capital to shore up its balance sheet, if the required arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk.
Check out our latest analysis for NOV
We measure a company’s debt load relative to its earnings power by seeing at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
NOV’s net debt is only 0.55 times its EBITDA. And its EBIT easily covers its interest expense, being 17.5 times the size. So you could argue it is no more threatened by its debt than an elephant is by a moutilize. On the other hand, NOV saw its EBIT drop by 7.2% in the last twelve months. That sort of decline, if sustained, will obviously create debt harder to handle. There’s no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine NOV’s ability to maintain a healthy balance sheet going forward. So if you’re focutilized on the future you can check out this free report displaying analyst profit forecasts.
But our final consideration is also important, becautilize a company cannot pay debt with paper profits; it requireds cold hard cash. So the logical step is to see at the proportion of that EBIT that is matched by actual free cash flow. In the last three years, NOV’s free cash flow amounted to 39% of its EBIT, less than we’d expect. That weak cash conversion creates it more difficult to handle indebtedness.
Our View
On our analysis NOV’s interest cover should signal that it won’t have too much trouble with its debt. However, our other observations weren’t so heartening. For example, its EBIT growth rate creates us a little nervous about its debt. Considering this range of data points, we believe NOV is in a good position to manage its debt levels. Having declared that, the load is sufficiently heavy that we would recommfinish any shareholders keep a close eye on it. There’s no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We’ve identified 2 warning signs with NOV , and understanding them should be part of your investment process.
If you’re interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
Valuation is complex, but we’re here to simplify it.
Discover if NOV might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividfinishs, insider trades, and its financial condition.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only applying an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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