Mid-caps stocks, like Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) with a market capitalization of US$2.1b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at MDGL’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into MDGL here.
Is MDGL’s debt level acceptable?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Madrigal Pharmaceuticals 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 MDGL, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can MDGL meet its short-term obligations with the cash in hand?
Since Madrigal Pharmaceuticals 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. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at US$6.6m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 73.67x. Having said that, a ratio greater than 3x may be considered high by some.
MDGL has no debt in addition to ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and its investors, though, some degree of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure MDGL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Madrigal Pharmaceuticals to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MDGL’s future growth? Take a look at our free research report of analyst consensus for MDGL’s outlook.
- Historical Performance: What has MDGL’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.
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