Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), with a market capitalization of US$2.2b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. ARNA’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ARNA here.
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How does ARNA’s operating cash flow stack up against its debt?
Over the past year, ARNA has reduced its debt from US$63m to US$59m . With this reduction in debt, ARNA currently has US$562m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of ARNA’s operating efficiency ratios such as ROA here.
Can ARNA meet its short-term obligations with the cash in hand?
Looking at ARNA’s US$22m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$572m, with a current ratio of 26.08x. However, a ratio above 3x may be considered excessive by some investors.
Does ARNA face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 11%, ARNA’s debt level may be seen as prudent. This range is considered safe as ARNA is not taking on too much debt obligation, which may be constraining for future growth. ARNA’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.
ARNA’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure ARNA has company-specific issues impacting its capital structure decisions. I recommend you continue to research Arena Pharmaceuticals to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ARNA’s future growth? Take a look at our free research report of analyst consensus for ARNA’s outlook.
- Valuation: What is ARNA 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 ARNA 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.
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.