Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) a safer option. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the key to extending previous success is in the health of the company’s financials. Today we will look at BioMarin Pharmaceutical’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into BMRN here.
Does BMRN produce enough cash relative to debt?
BMRN has sustained its debt level by about US$1.2b over the last 12 months – this includes long-term debt. At this constant level of debt, BMRN currently has US$1.4b remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of BMRN’s operating efficiency ratios such as ROA here.
Can BMRN pay its short-term liabilities?
At the current liabilities level of US$839m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.87x. Generally, for Biotechs companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is BMRN’s debt level acceptable?
With a debt-to-equity ratio of 41%, BMRN can be considered as an above-average leveraged company. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. Though, since BMRN is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, BMRN has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure BMRN has company-specific issues impacting its capital structure decisions. I suggest you continue to research BioMarin Pharmaceutical to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BMRN’s future growth? Take a look at our free research report of analyst consensus for BMRN’s outlook.
- Valuation: What is BMRN 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 BMRN 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.