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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Ascendis Pharma A/S (NASDAQ:ASND) with a market-capitalization of US$5.7b, rarely draw their attention. 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 ASND’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into ASND here.
Does ASND face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that Ascendis Pharma has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with ASND, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ASND pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Ascendis Pharma has no solvency issues, which is 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 €39m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 7.53x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered high by some.
ASND 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, but some degree of debt may also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for ASND's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Ascendis Pharma to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ASND’s future growth? Take a look at our free research report of analyst consensus for ASND’s outlook.
- Historical Performance: What has ASND'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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.