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Has argenx SE (EBR:ARGX) Got Enough Cash?

Simply Wall St

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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as argenx SE (EBR:ARGX), with a market cap of €4.3b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at ARGX’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ARGX here.

See our latest analysis for argenx

Is ARGX’s debt level acceptable?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that argenx 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 ARGX, and the company has plenty of headroom and ability to raise debt should it need to in the future.

ENXTBR:ARGX Historical Debt, April 3rd 2019
ENXTBR:ARGX Historical Debt, April 3rd 2019

Does ARGX’s liquid assets cover its short-term commitments?

Given zero long-term debt on its balance sheet, argenx 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. At the current liabilities level of €40m, the company has been able to meet these obligations given the level of current assets of €572m, with a current ratio of 14.29x. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high.

Next Steps:

ARGX has zero-debt in addition to ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and its investors, but some degree of debt may also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for ARGX's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research argenx to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ARGX’s future growth? Take a look at our free research report of analyst consensus for ARGX’s outlook.

  2. Historical Performance: What has ARGX'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.

  3. 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 editorial-team@simplywallst.com. 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.