All You Need To Know About Galapagos NV’s (AMS:GLPG) Financial Health
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Galapagos NV (AMS:GLPG), with a market capitalization of €4.9b, rarely draw their attention from the investing community. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at GLPG’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 GLPG here.
Check out our latest analysis for Galapagos
Is GLPG’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For GLPG, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with GLPG, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does GLPG’s liquid assets cover its short-term commitments?
Since Galapagos doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term 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 €247m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €1.1b, with a current ratio of 4.49x. However, anything above 3x may be considered excessive by some investors.
Next Steps:
GLPG has no debt as well as ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, however, some degree of debt could also boost earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how GLPG has performed in the past. You should continue to research Galapagos to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GLPG’s future growth? Take a look at our free research report of analyst consensus for GLPG’s outlook.
Historical Performance: What has GLPG’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.
