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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Insmed Incorporated (NASDAQ:INSM), with a market cap of US$2.0b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine INSM’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into INSM here.
Does INSM produce enough cash relative to debt?
Over the past year, INSM has ramped up its debt from US$55m to US$312m , which accounts for long term debt. With this increase in debt, INSM’s cash and short-term investments stands at US$568m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of INSM’s operating efficiency ratios such as ROA here.
Does INSM’s liquid assets cover its short-term commitments?
At the current liabilities level of US$57m, it appears that the company has been able to meet these commitments with a current assets level of US$577m, leading to a 10.06x current account ratio. Having said that, a ratio above 3x may be considered excessive by some investors.
Does INSM face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, INSM is a highly leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since INSM is presently loss-making, 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.
Although INSM’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure INSM has company-specific issues impacting its capital structure decisions. You should continue to research Insmed to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for INSM’s future growth? Take a look at our free research report of analyst consensus for INSM’s outlook.
- Valuation: What is INSM 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 INSM 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 past 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. For errors that warrant correction please contact the editor at email@example.com.