Mid-caps stocks, like Intrexon Corporation (NYSE:XON) with a market capitalization of $2.35B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. I will take you through a few basic checks to assess the financial health of companies with no debt. View our latest analysis for Intrexon
Does XON face the risk of succumbing to its debt-load?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. XON's debt-to-equity ratio stands at 1.47%, which means debt is low and does not pose any significant threat to the company's operations. We can test if XON’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings should cover interest by at least three times, therefore reducing concerns when profit is highly volatile. XON’s interest on debt is sufficiently covered by earnings as it sits at around 7.26x. This means lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Can XON meet its short-term obligations with the cash in hand?
Another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. To assess this, I compare XON's cash and other liquid assets against its upcoming debt. Our analysis shows that XON does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
XON’s ability to meet its short-term liabilities is an indication of financial strength. Its debt level is also relatively low, which reduces some risk for the company and its investors. Now that you know to keep debt in mind when putting together your investment thesis, I recommend you check out our latest free analysis report on Intrexon to see what other factors for XON you should consider.
PS. If you are not interested in Intrexon anymore, you can use our free platform to see my list of over 150 other stocks with a high growth potential.
To help readers see pass 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.