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Mid-caps stocks, like Glaukos Corporation (NYSE:GKOS) with a market capitalization of US$2.5b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. GKOS’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into GKOS here.
Does GKOS face the risk of succumbing to its debt-load?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For GKOS, the debt-to-equity ratio is zero, meaning that the company 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 GKOS, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does GKOS’s liquid assets cover its short-term commitments?
Since Glaukos 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. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at GKOS’s US$27m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.72x. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high.
GKOS has no debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, but some level of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I'm sure GKOS has company-specific issues impacting its capital structure decisions. I recommend you continue to research Glaukos to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GKOS’s future growth? Take a look at our free research report of analyst consensus for GKOS’s outlook.
- Valuation: What is GKOS 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 GKOS 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.
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 firstname.lastname@example.org. 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.