What Investors Should Know About Aeglea BioTherapeutics, Inc.’s (NASDAQ:AGLE) Financial Strength
The direct benefit for Aeglea BioTherapeutics, Inc. (NASDAQ:AGLE), which sports a zero-debt capital structure, to include debt in its capital structure is the reduced cost of capital. However, the trade-off is AGLE will have to adhere to stricter debt covenants and have less financial flexibility. While zero-debt makes the due diligence for potential investors less nerve-racking, it poses a new question: how should they assess the financial strength of such companies? I recommend you look at the following hurdles to assess AGLE’s financial health.
View our latest analysis for Aeglea BioTherapeutics
Does AGLE’s growth rate justify its decision for financial flexibility over 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. The lack of debt on AGLE’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 AGLE is a high-growth company. AGLE’s revenue growth over the past year is a single-digit 8.0% which is relatively low for a small-cap company. More capital can help the business grow faster. If AGLE is not expecting exceptional future growth, then the decision to avoid may cost shareholders in the long term.
Can AGLE meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Aeglea BioTherapeutics 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$7.5m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 9.37x. However, a ratio above 3x may be considered excessive by some investors.
Next Steps:
AGLE 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. Going forward, its financial position may be different. I admit this is a fairly basic analysis for AGLE’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Aeglea BioTherapeutics to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AGLE’s future growth? Take a look at our free research report of analyst consensus for AGLE’s outlook.
Historical Performance: What has AGLE’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.
