ABIOMED, Inc. (NASDAQ:ABMD), a large-cap worth US$12b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Assessing the most recent data for ABMD, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
Is ABMD’s debt level acceptable?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. For ABIOMED, 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 ABMD, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ABMD meet its short-term obligations with the cash in hand?
Since ABIOMED 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. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at ABMD’s US$93m in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$629m, leading to a 6.76x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
ABMD has no debt as well as ample cash to cover its short-term commitments. Its strong balance sheet reduces risk for the company and its investors. Keep in mind I haven’t considered other factors such as how ABMD has performed in the past. I recommend you continue to research ABIOMED to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ABMD’s future growth? Take a look at our free research report of analyst consensus for ABMD’s outlook.
- Valuation: What is ABMD 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 ABMD 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.
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