INSYS Therapeutics Inc (NASDAQ:INSY): Time For A Financial Health Check
Zero-debt allows substantial financial flexibility, especially for small-cap companies like INSYS Therapeutics Inc (NASDAQ:INSY), as the company does not have to adhere to strict debt covenants. However, it also faces higher cost of capital given interest cost is generally lower than equity. While INSY has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will take you through a few basic checks to assess the financial health of companies with no debt.
Check out our latest analysis for INSYS Therapeutics
Is INSY growing fast enough to value financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. The lack of debt on INSY’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if INSY is a high-growth company. INSY delivered a negative revenue growth of -41%. While its negative growth hardly justifies opting for zero-debt, if the decline sustains, it may find it hard to raise debt at an acceptable cost.
Does INSY’s liquid assets cover its short-term commitments?
Since INSYS 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. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of US$211m, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.69x.
Next Steps:
INSY is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. However, its lack of liquidity lowers our conviction around meeting short-term obligations. Some level of low-cost debt funding could help address these needs. Going forward, its financial position may change. This is only a rough assessment of financial health, and I’m sure INSY has company-specific issues impacting its capital structure decisions. You should continue to research INSYS Therapeutics to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for INSY’s future growth? Take a look at our free research report of analyst consensus for INSY’s outlook.
Historical Performance: What has INSY’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 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 editorial-team@simplywallst.com.
