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Is United Therapeutics Corporation's (NASDAQ:UTHR) Liquidity Good Enough?

Simply Wall St

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as United Therapeutics Corporation (NASDAQ:UTHR), with a market capitalization of US$4.8b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at UTHR’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into UTHR here.

See our latest analysis for United Therapeutics

UTHR’s Debt (And Cash Flows)

UTHR's debt level has been constant at around US$250m over the previous year including long-term debt. At this current level of debt, UTHR currently has US$1.4b remaining in cash and short-term investments , ready to be used for running the business. Moreover, UTHR has generated cash from operations of US$778m over the same time period, resulting in an operating cash to total debt ratio of 311%, meaning that UTHR’s operating cash is sufficient to cover its debt.

Can UTHR meet its short-term obligations with the cash in hand?

Looking at UTHR’s US$277m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$1.8b, with a current ratio of 6.39x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.

NasdaqGS:UTHR Historical Debt, April 12th 2019

Is UTHR’s debt level acceptable?

With debt at 9.0% of equity, UTHR may be thought of as having low leverage. UTHR is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.

Next Steps:

UTHR’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, 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 UTHR has been performing in the past. You should continue to research United Therapeutics to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for UTHR’s future growth? Take a look at our free research report of analyst consensus for UTHR’s outlook.
  2. Valuation: What is UTHR 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 UTHR is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.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.