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Has Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) Got Enough Cash?

Simply Wall St

Mid-caps stocks, like Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) with a market capitalization of US$2.2b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at BHVN’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 BHVN here.

Check out our latest analysis for Biohaven Pharmaceutical Holding

Does BHVN face the risk of succumbing to its debt-load?

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%. For Biohaven Pharmaceutical Holding, 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 BHVN, and the company has plenty of headroom and ability to raise debt should it need to in the future.

NYSE:BHVN Historical Debt, March 14th 2019

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

Since Biohaven Pharmaceutical Holding 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. 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 BHVN’s US$20m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$272m, with a current ratio of 13.94x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.

Next Steps:

BHVN has zero-debt as well as ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and shareholders, however, some degree of debt may also boost earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how BHVN has performed in the past. You should continue to research Biohaven Pharmaceutical Holding to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for BHVN’s future growth? Take a look at our free research report of analyst consensus for BHVN’s outlook.
  2. Valuation: What is BHVN 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 BHVN is currently mispriced by the market.
  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.