What does Amarin Corporation plc’s (NASDAQ:AMRN) Balance Sheet Tell Us About Its Future?

Stocks with market capitalization between $2B and $10B, such as Amarin Corporation plc (NASDAQ:AMRN) with a size of US$5.8b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at AMRN’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AMRN here.

Check out our latest analysis for Amarin

AMRN’s Debt (And Cash Flows)

AMRN has shrunk its total debt levels in the last twelve months, from US$123m to US$80m , which also accounts for long term debt. With this debt repayment, AMRN’s cash and short-term investments stands at US$249m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. 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 AMRN’s operating efficiency ratios such as ROA here.

Does AMRN’s liquid assets cover its short-term commitments?

With current liabilities at US$157m, it appears that the company has been able to meet these commitments with a current assets level of US$378m, leading to a 2.4x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Pharmaceuticals companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.

NasdaqGM:AMRN Historical Debt, March 27th 2019
NasdaqGM:AMRN Historical Debt, March 27th 2019

Can AMRN service its debt comfortably?

With a debt-to-equity ratio of 53%, AMRN can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since AMRN is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

AMRN’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around AMRN’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how AMRN has been performing in the past. You should continue to research Amarin to get a better picture of the mid-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for AMRN’s future growth? Take a look at our free research report of analyst consensus for AMRN’s outlook.
  2. Valuation: What is AMRN 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 AMRN is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.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.