Mid-caps stocks, like ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) with a market capitalization of US$3.8b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. ACAD’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into ACAD here.
Does ACAD face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For ACADIA Pharmaceuticals, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with ACAD, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ACAD pay its short-term liabilities?
Given zero long-term debt on its balance sheet, ACADIA Pharmaceuticals has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at US$60m, the company has been able to meet these obligations given the level of current assets of US$526m, with a current ratio of 8.83x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered high by some.
ACAD has no debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, though, some level of debt could also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure ACAD has company-specific issues impacting its capital structure decisions. I suggest you continue to research ACADIA Pharmaceuticals to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ACAD’s future growth? Take a look at our free research report of analyst consensus for ACAD’s outlook.
- Valuation: What is ACAD worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ACAD is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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