Why Genmab A/S (CPH:GEN) Is A Financially Healthy Company
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Genmab A/S (CPH:GEN) with a market-capitalization of ø54.6b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at GEN’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 GEN here.
Check out our latest analysis for Genmab
Does GEN face the risk of succumbing to its debt-load?
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. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For GEN, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with GEN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can GEN pay its short-term liabilities?
Since Genmab doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term 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. At the current liabilities level of ø335m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 19.94x. Having said that, a ratio greater than 3x may be considered as quite high, and some might argue GEN could be holding too much capital in a low-return investment environment.
Next Steps:
GEN has no debt in addition to ample cash to cover its near-term liabilities. Its safe operations reduces risk for the company and shareholders, however, some level of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure GEN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Genmab to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GEN’s future growth? Take a look at our free research report of analyst consensus for GEN’s outlook.
Valuation: What is GEN 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 GEN 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.
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.
