Is Ultragenyx Pharmaceutical Inc.’s (NASDAQ:RARE) Liquidity Good Enough?
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Stocks with market capitalization between $2B and $10B, such as Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE) with a size of US$2.7b, do not attract as much attention from the investing community as do the small-caps and large-caps. 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 RARE’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 RARE here.
Check out our latest analysis for Ultragenyx Pharmaceutical
Is RARE’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For Ultragenyx Pharmaceutical, investors should not worry about its debt levels because the company has none! 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 RARE, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does RARE’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Ultragenyx Pharmaceutical has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at RARE’s US$67m in current liabilities, the company has been able to meet these commitments with a current assets level of US$567m, leading to a 8.51x current account ratio. However, a ratio greater than 3x may be considered high by some.
Next Steps:
RARE has zero-debt in addition to ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and its investors, though, some level of debt may also ramp up earnings growth and operational efficiency. I admit this is a fairly basic analysis for RARE’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Ultragenyx Pharmaceutical to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for RARE’s future growth? Take a look at our free research report of analyst consensus for RARE’s outlook.
Historical Performance: What has RARE’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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
