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What Investors Should Know About Cellular Biomedicine Group, Inc.’s (NASDAQ:CBMG) Financial Strength

The direct benefit for Cellular Biomedicine Group, Inc. (NASDAQ:CBMG), 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 CBMG will have to adhere to stricter debt covenants and have less financial flexibility. While CBMG has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I recommend you look at the following hurdles to assess CBMG’s financial health.

Check out our latest analysis for Cellular Biomedicine Group

Is CBMG right in choosing financial flexibility over lower cost of capital?

Debt funding can be cheaper than issuing new equity due to lower interest cost on debt. 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. Either CBMG does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital. Opposite to the high growth we were expecting, CBMG’s negative revenue growth of -18% hardly justifies opting for zero-debt. If the decline sustains, it may find it hard to raise debt at an acceptable cost.

NasdaqGM:CBMG Historical Debt December 26th 18
NasdaqGM:CBMG Historical Debt December 26th 18

Does CBMG’s liquid assets cover its short-term commitments?

Given zero long-term debt on its balance sheet, Cellular Biomedicine Group has no solvency issues, which is 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$5.9m, it appears that the company has been able to meet these commitments with a current assets level of US$70m, leading to a 11.86x current account ratio. However, a ratio above 3x may be considered excessive by some investors.

Next Steps:

CBMG is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. Since there is also no concerns around CBMG’s liquidity needs, this may be its optimal capital structure for the time being. In the future, its financial position may be different. Keep in mind I haven’t considered other factors such as how CBMG has been performing in the past. You should continue to research Cellular Biomedicine Group to get a better picture of the stock by looking at:

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

  2. Valuation: What is CBMG 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 CBMG is currently mispriced by the market.

  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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