Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Foundation Medicine Inc (NASDAQ:FMI), with a market cap of US$2.64B, often get neglected by retail investors. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine FMI’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 FMI here. See our latest analysis for Foundation Medicine
Does FMI generate enough cash through operations?
Over the past year, FMI has borrowed debt capital of around US$60.00M made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$71.40M , ready to deploy 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of FMI’s operating efficiency ratios such as ROA here.
Can FMI pay its short-term liabilities?
Looking at FMI’s most recent US$66.44M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.86x. Generally, for Biotechs companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can FMI service its debt comfortably?
Since total debt levels have outpaced equities, FMI is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since FMI is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, FMI has room for improvement to better cushion for events which may require debt repayment. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure FMI has company-specific issues impacting its capital structure decisions. I recommend you continue to research Foundation Medicine to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FMI’s future growth? Take a look at our free research report of analyst consensus for FMI’s outlook.
- Historical Performance: What has FMI’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.
- 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 pass 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.