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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Nektar Therapeutics (NASDAQ:NKTR) with a market-capitalization of US$7.4b, 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. Let’s take a look at NKTR’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into NKTR here.
How much cash does NKTR generate through its operations?
Over the past year, NKTR has maintained its debt levels at around US$247m which accounts for long term debt. At this stable level of debt, NKTR’s cash and short-term investments stands at US$1.4b for investing into the business. Moreover, NKTR has produced cash from operations of US$755m in the last twelve months, leading to an operating cash to total debt ratio of 306%, indicating that NKTR’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In NKTR’s case, it is able to generate 3.06x cash from its debt capital.
Does NKTR’s liquid assets cover its short-term commitments?
Looking at NKTR’s US$108m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$1.5b, with a current ratio of 13.93x. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Is NKTR’s debt level acceptable?
NKTR’s level of debt is appropriate relative to its total equity, at 14%. NKTR is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether NKTR is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In NKTR’s, case, the ratio of 52.11x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
NKTR’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 exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how NKTR has been performing in the past. You should continue to research Nektar Therapeutics to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NKTR’s future growth? Take a look at our free research report of analyst consensus for NKTR’s outlook.
- Valuation: What is NKTR 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 NKTR 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 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.