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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Acceleron Pharma Inc. (NASDAQ:XLRN) with a market-capitalization of US$2.0b, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Today we will look at XLRN’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into XLRN here.
Does XLRN face the risk of succumbing to its debt-load?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For Acceleron Pharma, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with XLRN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can XLRN meet its short-term obligations with the cash in hand?
Since Acceleron Pharma doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term 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$23m, it appears that the company has been able to meet these commitments with a current assets level of US$448m, leading to a 19.26x current account ratio. 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.
XLRN has zero-debt as well as ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and its investors, though, some degree of debt could also ramp up earnings growth and operational efficiency. I admit this is a fairly basic analysis for XLRN's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Acceleron Pharma to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for XLRN’s future growth? Take a look at our free research report of analyst consensus for XLRN’s outlook.
- Valuation: What is XLRN 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 XLRN 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.