Investors pursuing a solid, dependable stock investment can often be led to Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), a large-cap worth US$10b. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. However, its financial health remains the key to continued success. Today we will look at Ionis Pharmaceuticals’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into IONS here.
Does IONS Produce Much Cash Relative To Its Debt?
IONS's debt levels surged from US$607m to US$647m over the last 12 months – this includes long-term debt. With this increase in debt, IONS currently has US$2.1b remaining in cash and short-term investments to keep the business going. Moreover, IONS has generated cash from operations of US$603m during the same period of time, leading to an operating cash to total debt ratio of 93%, indicating that IONS’s operating cash is sufficient to cover its debt.
Does IONS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$280m, it seems that the business has been able to meet these commitments with a current assets level of US$2.2b, leading to a 7.88x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Does IONS face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 54%, IONS can be considered as an above-average leveraged company. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies.
Although IONS’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. Since there is also no concerns around IONS's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure IONS has company-specific issues impacting its capital structure decisions. I recommend you continue to research Ionis Pharmaceuticals to get a more holistic view of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IONS’s future growth? Take a look at our free research report of analyst consensus for IONS’s outlook.
- Valuation: What is IONS 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 IONS 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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