Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Spark Therapeutics Inc (NASDAQ:ONCE), with a market cap of US$2.16b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. ONCE’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Spark Therapeutics’s financial health, so you should conduct further analysis into ONCE here.
How does ONCE’s operating cash flow stack up against its debt?
Over the past year, ONCE has reduced its debt from US$1.38m to US$1.07m – this includes both the current and long-term debt. With this debt payback, ONCE’s cash and short-term investments stands at US$647.23m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of ONCE’s operating efficiency ratios such as ROA here.
Does ONCE’s liquid assets cover its short-term commitments?
Looking at ONCE’s most recent US$37.44m liabilities, the company has been able to meet these obligations given the level of current assets of US$691.55m, with a current ratio of 18.47x. Though, anything about 3x may be excessive, since ONCE may be leaving too much capital in low-earning investments.
Does ONCE face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For Spark Therapeutics, investors should not worry about its debt levels because the company has very, very little on its balance sheet! It has been operating its business with miniscule debt and utilising only its equity capital. 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.
ONCE’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure ONCE has company-specific issues impacting its capital structure decisions. You should continue to research Spark Therapeutics to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ONCE’s future growth? Take a look at our free research report of analyst consensus for ONCE’s outlook.
- Valuation: What is ONCE 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 ONCE 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 firstname.lastname@example.org.