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Mid-caps stocks, like Genomic Health, Inc. (NASDAQ:GHDX) with a market capitalization of US$2.0b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at GHDX’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. Don’t forget that this is a general and concentrated examination of Genomic Health's financial health, so you should conduct further analysis into GHDX here.
GHDX’s Debt (And Cash Flows)
GHDX has increased its debt level by about US$58m over the last 12 months . With this growth in debt, GHDX's cash and short-term investments stands at US$206m to keep the business going. Additionally, GHDX has produced US$67m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 114%, indicating that GHDX’s current level of operating cash is high enough to cover debt.
Can GHDX meet its short-term obligations with the cash in hand?
With current liabilities at US$49m, it seems that the business has been able to meet these obligations given the level of current assets of US$281m, with a current ratio of 5.67x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Can GHDX service its debt comfortably?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that Genomic Health has virtually no debt. This means it has been running its business utilising funding from primarily its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with GHDX, and the company has plenty of headroom and ability to raise debt should it need to in the future.
GHDX’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven't considered other factors such as how GHDX has been performing in the past. I recommend you continue to research Genomic Health to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GHDX’s future growth? Take a look at our free research report of analyst consensus for GHDX’s outlook.
- Valuation: What is GHDX 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 GHDX 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.
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 email@example.com. 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.