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Interpace Diagnostics Group Inc (NASDAQ:IDXG): Time For A Financial Health Check

Interpace Diagnostics Group Inc (NASDAQ:IDXG), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is IDXG will have to follow strict debt obligations which will reduce its financial flexibility. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean IDXG has outstanding financial strength. I recommend you look at the following hurdles to assess IDXG’s financial health.

Check out our latest analysis for Interpace Diagnostics Group

Is financial flexibility worth the lower cost of capital?

Debt capital generally has lower cost of capital compared to equity funding. But the downside of having debt in a company’s balance sheet is the debtholder’s higher claim on its assets in the case of liquidation, as well as stricter capital management requirements. IDXG’s absence of debt on its balance sheet may be due to lack of access to cheaper capital, or it may simply believe low cost is not worth sacrificing financial flexibility. However, choosing flexibility over capital returns is logical only if it’s a high-growth company. IDXG’s revenue growth over the past year is a double-digit 39% which is considerably high for a small-cap company. Therefore, the company’s decision to choose financial flexibility is justified as it may need headroom to borrow in the future to sustain high growth.

NasdaqCM:IDXG Historical Debt November 27th 18
NasdaqCM:IDXG Historical Debt November 27th 18

Can IDXG pay its short-term liabilities?

Given zero long-term debt on its balance sheet, Interpace Diagnostics Group has no solvency issues, which is 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$7.8m, the company has been able to meet these obligations given the level of current assets of US$18m, with a current ratio of 2.35x. Generally, for Healthcare companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.

Next Steps:

IDXG is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. In the future, its financial position may be different. I admit this is a fairly basic analysis for IDXG’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Interpace Diagnostics Group to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for IDXG’s future growth? Take a look at our free research report of analyst consensus for IDXG’s outlook.

  2. Historical Performance: What has IDXG’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.

  3. 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.

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