Is Global Blood Therapeutics Inc’s (NASDAQ:GBT) Liquidity As Good As Its Solvency?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Global Blood Therapeutics Inc (NASDAQ:GBT), with a market cap of US$2.83B, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at GBT’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into GBT here. View our latest analysis for Global Blood Therapeutics
Is GBT’s debt level acceptable?
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. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For Global Blood Therapeutics, 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 GBT, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can GBT meet its short-term obligations with the cash in hand?
Since Global Blood Therapeutics 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 US$26.26M, it seems that the business has been able to meet these commitments with a current assets level of US$324.31M, leading to a 12.35x current account ratio. Though, a ratio greater than 3x may be considered as too high, as GBT could be holding too much capital in a low-return investment environment.
Next Steps:
GBT has no debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, however, some level of debt may also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure GBT has company-specific issues impacting its capital structure decisions. I suggest you continue to research Global Blood Therapeutics to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GBT’s future growth? Take a look at our free research report of analyst consensus for GBT’s outlook.
Valuation: What is GBT 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 GBT 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.
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.
