Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Supernus Pharmaceuticals, Inc. (NASDAQ:SUPN), with a market cap of US$2.0b, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. SUPN’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into SUPN here.
SUPN’s Debt (And Cash Flows)
Over the past year, SUPN has borrowed debt capital of around US$329m including long-term debt. With this ramp up in debt, SUPN’s cash and short-term investments stands at US$356m , ready to be used for running the business. On top of this, SUPN has produced cash from operations of US$129m during the same period of time, leading to an operating cash to total debt ratio of 39%, indicating that SUPN’s operating cash is sufficient to cover its debt.
Can SUPN meet its short-term obligations with the cash in hand?
With current liabilities at US$161m, it seems that the business has been able to meet these obligations given the level of current assets of US$493m, with a current ratio of 3.06x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Does SUPN face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 73%, SUPN can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if SUPN’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For SUPN, the ratio of 33.84x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as SUPN’s high interest coverage is seen as responsible and safe practice.
Although SUPN’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. Keep in mind I haven’t considered other factors such as how SUPN has been performing in the past. I suggest you continue to research Supernus Pharmaceuticals to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SUPN’s future growth? Take a look at our free research report of analyst consensus for SUPN’s outlook.
- Valuation: What is SUPN 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 SUPN 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.
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