Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE) with a market-capitalization of US$3.4b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at RARE’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into RARE here.
Does RARE 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. 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.
Can RARE meet its short-term obligations with the cash in hand?
Since Ultragenyx Pharmaceutical 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. With current liabilities at US$67m, it appears that the company has been able to meet these obligations given the level of current assets of US$787m, with a current ratio of 11.77x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.
RARE has zero-debt as well as ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and shareholders, though, some level of debt may also ramp up earnings growth and operational efficiency. Keep in mind I haven't considered other factors such as how RARE has performed in the past. I suggest you continue to research Ultragenyx Pharmaceutical to get a more holistic view 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.
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 email@example.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.