Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Alkermes plc (NASDAQ:ALKS), with a market cap of US$5.3b, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine ALKS’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 ALKS here.
ALKS’s Debt (And Cash Flows)
ALKS has sustained its debt level by about US$279m over the last 12 months – this includes long-term debt. At this current level of debt, ALKS's cash and short-term investments stands at US$539m to keep the business going. Moreover, ALKS has produced cash from operations of US$99m in the last twelve months, resulting in an operating cash to total debt ratio of 36%, meaning that ALKS’s current level of operating cash is high enough to cover debt.
Does ALKS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$340m, it seems that the business has been able to meet these obligations given the level of current assets of US$983m, with a current ratio of 2.89x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Biotechs companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can ALKS service its debt comfortably?
ALKS’s level of debt is appropriate relative to its total equity, at 24%. ALKS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. ALKS's risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
ALKS’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how ALKS has been performing in the past. I recommend you continue to research Alkermes to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ALKS’s future growth? Take a look at our free research report of analyst consensus for ALKS’s outlook.
- Valuation: What is ALKS 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 ALKS 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.