Genmab A/S (CPH:GEN), a large-cap worth ø69b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for GEN to determine is solvency and liquidity and whether the stock is a sound investment.
Is GEN’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. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. The good news for investors is that Genmab has no debt. 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 GEN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does GEN’s liquid assets cover its short-term commitments?
Since Genmab 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. With current liabilities at ø443m, the company has been able to meet these obligations given the level of current assets of ø7.4b, with a current ratio of 16.77x. The current ratio is the number you get when you divide current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
GEN has zero debt as well as ample cash to cover its short-term commitments. Its strong balance sheet reduces risk for the company and shareholders. This is only a rough assessment of financial health, and I'm sure GEN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Genmab to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GEN’s future growth? Take a look at our free research report of analyst consensus for GEN’s outlook.
- Valuation: What is GEN 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 GEN 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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.