Stocks with market capitalization between $2B and $10B, such as Tandem Diabetes Care, Inc. (NASDAQ:TNDM) with a size of US$3.8b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at TNDM’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 TNDM here.
Can TNDM service its debt comfortably?
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. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For Tandem Diabetes Care, 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 TNDM, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can TNDM pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Tandem Diabetes Care has no solvency issues, which is 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 US$66m, it appears that the company has been able to meet these obligations given the level of current assets of US$188m, with a current ratio of 2.83x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Medical Equipment companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
TNDM has zero-debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, but some degree of debt could also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for TNDM’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Tandem Diabetes Care to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TNDM’s future growth? Take a look at our free research report of analyst consensus for TNDM’s outlook.
- Valuation: What is TNDM 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 TNDM 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.
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 firstname.lastname@example.org. 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.