Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as ACADIA Pharmaceuticals Inc (NASDAQ:ACAD) with a market-capitalization of US$2.48b, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine ACAD’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ACAD here.
Does ACAD face the risk of succumbing to its debt-load?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. The good news for investors is that ACADIA Pharmaceuticals has no debt. 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 meet its short-term obligations with the cash in hand?
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. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at ACAD’s most recent US$49.2m liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$301.1m, leading to a 6.12x current account ratio. Having said that, a ratio greater than 3x may be considered as quite high, and some might argue ACAD could be holding too much capital in a low-return investment environment.
ACAD has zero-debt as well as ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, though, some level of debt may 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 better picture 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.
- Historical Performance: What has ACAD’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.