Spark Therapeutics Inc (ONCE): Financial Strength Analysis
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Spark Therapeutics Inc (NASDAQ:ONCE) with a market capitalization of $2.63B, rarely draw their attention from analysts and investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. I’ve put together a small checklist, which I believe provides a ballpark estimate of their financial health status. Check out our latest analysis for Spark Therapeutics
Is ONCE’s level of debt at an acceptable level?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. The good news for investors is that Spark Therapeutics 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 ONCE, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ONCE 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. In order to measure liquidity, we must compare ONCE’s current assets with its upcoming liabilities. Our analysis shows that ONCE does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Next Steps:
Are you a shareholder? ONCE’s low debt is also met with low coverage. Investors should ask themselves if they believe ONCE still has room for improvement in terms of its operating efficiency given cash flow currently covers less than a quarter of its borrowings. Given that ONCE’s financial position could change over time, You should continue researching market expectations for ONCE’s future growth on our free analysis platform.
Are you a potential investor? While investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. ONCE’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
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.
